Question

Based on the following data, would you recommend buying or renting? Rental costs Annual rent Insurance Security deposit (9,650 16 interest) $ 7,530 $ 16e $ 725 Buying costs Annual mortgage payments Property taxes Down payment/closing costs Growth in equity Insurance/maintenance Estimated annual appreciation $10, 180 $ 1,840 $ 4, sae $ 458 $ 1,200 $ 1,850 Assume an after-tax savings interest rate of 5 percent and a tax rate of 26 percent. Assume this individual has other tax deductions that exceed the standard deduction amount. a. Calculate total rental cost and total buying cost. (Do not round intermediate calculations. Round your answers to the nearest whole dollar.) Rental cost Buying cost b. Would you recommend buying or renting? Buying Renting

Answer 1

в a) Rental Costs Rent Insurance Interest lost on security deposit $ $ $ Buying cost 7,530 Mortgage payments 160 Property taxes, insurance, maintenance 36.25 Interest lost on down payment Growth in equity Estimated annual appreciation Tax saving for mortgage interest Tax savings for property tax $ $ $ $ $ $ $ 10,100 3,040 240 -450 -1,850 -2,509 -478.4 Total Rental cost $ 7,726 Total Buying cost $ 8,093 b) 13 14 15 Cost of renting is less than the cost of buying. Renting should be recommended.

Excel formula:

в Rental Costs 7530 Rent Insurance Interest lost on security deposit 160 725*5% Buying cost Mortgage payments 10100 Property taxes, insurance, maintenance =1840+1200 Interest lost on down payment =4800*5% Growth in equity -450 Estimated annual appreciation -1850 Tax saving for mortgage interest =-(9650*26%) Tax savings for property tax =-1840*26% Total Rental cost =SUM(C3:010) Total Buying cost =SUM(E3:E10) Cost of renting is less than the cost of buying. Renting should be recommended.