Assignment 2 Buy versus Rent Analysis;

| August 29, 2015

Assignment 2 Buy versus Rent Analysis;

This project should be done in pairs. You need to decide on two kinds of living accommodation you will select for comparison and analysis. It must be ‘apples to apples’ as much as possible; that is, a two bedroom two bath, 1,000 square foot condo versus a similar apartment, or a three bedroom rental house versus buying a three bedroom house, similar quality and neighborhood etc…
1. Ideally you will find an example of two very similar homes, one for sale, and one for rent, in order to get realistic rental costs and realistic purchase price information. Each team must present a different example.
2. Determine all the costs required for making a fair comparison of renting versus buying. You need to distinguish between ongoing ownership expenses versus one- time costs. (Property tax, property insurance, maintenance, utilities, strata fees, versus property purchase tax, CMHC insurance, and other closing costs).
3. Determine and specify your assumptions about appreciation of owned property and opportunity costs for investing excess funds (inflation – CPI etc.). Determine and indicate realistic interest rates and long term projections.
4. Many financial institutions offer software on the internet to help with these calculations and you may use some, and even compare a couple, but make sure you figure out what assumptions they are using and whether you agree with them. You may also use your own calculation in excel. Ask me if you are having trouble finding resources.
5. Consider qualitative factors as well.
Goals of the project:
? To understand the variables to be considered in determining the “best” financial decision in a buy versus rent decision.
? To work through the assumptions and calculations to analyse a buy versus rent decision.
? To develop your recommendation.
Project Deliverables
? A one page chart or spreadsheet showing the properties, comparing the buy vs rent outcome, itemizing your assumptions and citing sources at the bottom
? Your overall buy versus rent recommendation and any qualitative considerations.
? Presentation: Three minutes to illustrate the properties you researched, how you reached your conclusion, and your recommendation.
Marking scheme – total 5 marks primarily based on the presentation
Top marks will be given for a clear, concise, professional, insightful, accurate, logical review and recommendation.

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