Group 5 : Christopher Chock Kirstie Choza Akina Trinh Leo Xue Buy VS. Rent a House

Our Goal: To find out whether we should buy or rent a given house Assumptions: A 30 year old, single person Annual income of $80, A given house in Pasadena, CA. – 1450 sq-ft with 3 bedrooms – a cost of $540,000

Buying a House Advantages The house is an investment. Over time, you can get a return on the house because at the end you can sell it. – If house value does not appreciate Equity builds Mortgage Balance declines When you pay your taxes, you can get an exemption for being a homeowner. Possibility of increasing house value by fixing or remodeling

Buying a House Disadvantages Responsible for all maintenance costs which can vary You have permanent residence until your house is sold. Requires a larger initial investment Equity has the possibility of changing or not moving at all

Rent a House Advantages Do not lose equity When the contract is up, the renter can just move Deposit is much smaller than down payment for a house There are less or no maintenance costs

Rent a House Disadvantages Never gain equity No personalization allowed No tax advantages available No return on investment Deposit could have been invested elsewhere

Conclusions Never a positive cash flow for leasing house Sale price at 30 years offsets all expenses

Our Decision With our given scenario we decided to buy a house. After a sensitivity analysis was conducted, as the appreciation rate lowers, buying a house becomes less attractive.