Financial case

Rebeca trying to make her decision whether to buy or rent condo in Toronto, her current situation is that she rents a two bed room apartment for $3000 monthly and there is another apartment to buy for 620,000

From the qualitative aspect she has many factors that affect her decision such as her future job and personal situation and prices market in Toronto from the quantitative analysis, Rebeca wanted to pay 20%(480.000) and $2000 at signing added to lump sum $140.000 and her mortgage payment to be $2,533 per month and 4% for monthly maintenance fees, repairs, and taxes

Four scenarios are proposed the first is that the condo price remains unchanged; the second is that the condo price drops 10 per cent over the next two years, then increases back to its purchase price by the end of five years, then increases by a total of 10 per cent from the original purchase price by the end of 10 years; the third is that the condo price increases annually by the annual rate of inflation of 2 per cent per year over the next 10 years. Finally, the condo price increases annually by an annual rate of 5 per cent per year over the next 10 years.

            I would recommend her to rent 2 and 5 years which are cheaper options because she is not sure about her future plans, but at the same time if she was not able to move in period of 5 years she would lose a lot f money

And prices will arise at the rate as the Canadian housing market is currently in extreme bubble (Russell, 2016)

References

Richard Ivey School of Business Foundation (2014). Time Value of Money: The Buy Versus Rent Decision. Retrieved from https://cb.hbsp.harvard.edu/cbmp/content/56465167

-Jeffrey’s post

This problem was presented as a way to determine if Rebecca should continue renting her current apartment at a cost of 3,000 a month or if she should buy a separate apartment in the same building at a price of $600,000. There are many factors that should be considered in addition to the quantitative factors associated with the problems.  Can the purchase be considered an investment that will generate revenue for her down the line when she sells it? Will the space in the apartment be enough for her and possibly her family down the line? And will she want to stay there after a couple of years?

After doing the computations it seems that the costs associated with buying the apartment outweigh the benefits from a numbers perspective.  After analyzing the numbers, it seems that the only scenario that would support buying the apartment is scenario D where it is annually appreciating at a rate of 5 percent. Which is greater than the opportunity cost of investing at 4%. The other thing to consider (although it does not show in the spreadsheet) is that the longer the property is held on to the more sense it makes to buy it rather than renting it.

All of my calculations and formulas are on the attached spreadsheet.

Thank you,

Jeff