Rental Costs Buying Costs Annual rent $ 7,380 Annual mortgage payments $ 9,800 (
ID: 2773738 • Letter: R
Question
Rental Costs Buying Costs Annual rent $ 7,380 Annual mortgage payments $ 9,800 ($9,575 is interest) Insurance $ 145 Property taxes $ 1,780 Security deposit $ 650 Down payment/closing costs $ 4,500 Growth in equity $ 225 Insurance/maintenance $ 1,050 Estimated annual appreciation $ 1,700 Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 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? Renting BuyingExplanation / Answer
The computation of total rental cost and buying cost has been given in the following tables:
Notes:
1) Since, the security is a refundable amount, its value has not been included in the rental cost.
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Notes:
1) Down-payment is a one time payment and hence, its value is not considered in calculating the total buying cost as apportioned on yearly basis.
2) Interest and property taxes are tax deductible expenses resulting in tax savings. Hence, the total savings resulting from each are deducted from the costs related to buying property.
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Part B)
Based on the above calculations, it is advisable to take the property on rent as it results in lesser cost.
Answer for Part B) is Renting.
Rental Costs Rent 7,380 Insurance 145 Loss of Interest on Security Deposit ($650*6%) 39 Total Rental Costs $7,564