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12 - Cal Poly Pomona

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12 - Cal Poly Pomona
EGR 403 – Project II
Buying A House
vs.
Buying A Condo
Team 12
Lala Garabidian……...(Organizer)
Phat Bao………………(Organizer)
Samuel Mangampo……..(Techie)
Mark Mckinney……..(Summarizer)
Scenario

Mr. Cal Poly, Pomona alumni graduated in
1999 as an Electrical Engineer who is 32
years old and makes $54K a year. He
currently has $27K in his savings account. He
is engaged and plans to get married next
year and also plans to retire at age 65. He is
facing a dilemma of whether to buy a house
or a condo—whichever one will be a better
investment for him.
Decision-Making Process
House
Condo
$300,000
$300,000
Down Payment
(10%)
Down Payment
(10%)
Appreciation
(8% per annum)
Appreciation
(6% per annum)
Closing Cost
(0.33%)
Closing Cost
(0.33%)
Association Fees
$150/month
Scenario #1
Purchasing a House
Description

Address: 447 E ADAIR ST
Long Beach, CA 90805

Price: $300,000
Living space: 1,102 Sq. Ft
Estimated payment: $1,579 Per Month
Single Family Property
Area: Long Beach; North Long Beach
County: Los Angeles
Single family style
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
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More Detailed Information
On The House



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2 car garage
Detached garage
Concrete block
Tile roof
Yard(s) on property
Lot is 2925 sq. ft.
High School District:
LONG BEACH UNIFIED
SCHOOL DISTRICT


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Formal dining room
Living room
Approximately 1102 sq. ft
Single level
Year built: 1977
3 total bedroom(s)
2.00 total bath(s)
Scenario #2
Purchasing a Condo
Description



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
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
Address: 3721 COUNTRY CLUB DR Unit: 15
Long Beach, CA 90807
Price: $300,000
1,120 Sq. Ft
Association fees are $150 mo.
Estimated payment: $1,579 Per Month
Area: Long Beach; Bixby Knolls
County: Los Angeles
Condo style
Single level
More Detailed Information
On The Condo
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Dining area
Approximately 1120 sq. ft.
Parking space(s): 2
2.00 total bath(s)
Year built: 1974
3 total bedroom(s)
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Composition roof
In-ground swimming pool
Community clubhouse(s)
Community sauna/steam
room(s)
Patio
Master bedroom
2 car garage
Assumptions
House
Condo
Purchase Price
$300,000
$300,000
Down Payment(10%)
$30,000
$30,000
Closing Cost(0.33%)
$2,137
$1,773
Loan Amount
$270,000
$270,000
Maintenance
5% of yearly payment
2% of yearly payment
Taxes
1.25% of market price
1.25% of market price
Insurance
0.3% of loan amount
0.3% of loan amount
0
$150/month
8% per annum
6% annually
Monthly Payment
Association
Fee
Appreciation
$647,677
FV
Cash Flow Diagram
House (in 10 years)
Closing Costs
$2,137
Payment $17,393
Property Taxes $3,750
Insurance $810
Maintenance $870
A
Present Value
$300,000
A
A
A
A
A
A
A
A
A
$537,254
FV
Cash Flow Diagram
Condo (in 10 years)
Closing Costs
$1,773
Payment $17,393
Property Taxes $3,750
Insurance $810
Maintenance $348
A
Present Value
$300,000
A
A
A
A
A
A
A
A
A
Sensitivity Analysis
Interest
Tax Savings
Maintenance
Prop. Taxes
Rate(%)
ROR (house)
ROR (condo)
4
13.16%
6.21%
5
11.88%
4.70%
7
9.27%
0.48%
9
6.67%
-3.24%
25
11.59%
4.49%
28
11.88%
4.70%
31
12.17%
5.08%
-1
12.01%
4.84%
1
11.75%
4.56%
3
11.48%
4.30%
0.25
14.29%
6.70%
1.25
11.88%
4.70%
2.25
9.68%
2.08%
Sensitivity Analysis continued…
Rate(%)
Down Payment
ROR (house)
10
11.88%
4.70%
20
10.88%
4.65%
30
9.15%
5.26%
6.21%
4.70%
9.16%
7.73%
11.88%
10.51%
14.42%
13.10%
16.81%
15.54%
10
11.88%
4.70%
20
9.62%
4.98%
30
8.87%
5.13%
6
7
Appreciation
ROR (condo)
8
9
10
Years of keeping the property
Graph I
House
House
ROR (%)
Rate vs. ROR (10 yrs.)
16
14
12
10
8
6
4
2
0
Payment
Tax Savings
Maintenance
Prop. Taxes
Down Payment
Appreciation
6
7
8
Rate (%)
Graph II
Condo
Condo
Rate vs. ROR (10 yrs.)
12
10
Interest
ROR (%)
8
Tax Savings
6
Maintenance
4
Prop. Taxes
2
0
-2
Down Payment
6
7
8
-4
Rate (%)
Appreciation
Graph III
Appreciation Analysis
Appreciation
House vs. Condo
ROR (%)
20
15
House
10
Condo
5
0
6
7
8
Appreciation(%)
9
10
Graph IV
Best Alternative
Comparison of Best Alternatives
House vs. Condo (10 yrs.)
ROR (%)
20
15
House
10
Condo
5
0
0.25
4
10
10.1
Rate (%)
30
31
Graph V
Best Alternative
Time Variation
House vs. Condo
14
ROR (%)
12
10
8
House
6
Condo
4
2
0
10
20
Years
30
Conclusion
Summary Table of the Best Choice Alternatives
ROR
House
Condo
16.34%
6.78%
Recommendations

To sell the house after 10 years to gain the most Rate of Return on the
asset.

Buy the house, not the condo, because of higher percentage of ROR.

Wait until marriage so that more income can be generated for a better
house in a better location.

Rent instead of buying.

Analyze the Rate of Return in 10 years and decide whether to liquidate
or not.

Wait until the appreciation goes up then sell it.
Sources Used

Internet

Book: Newnan,D.G, Essentials of
Engineering Economic Analysis

Dr.Rosenkrantz
Fly UP