You currently pay $10,000 per year in rent to a landlord for a $100,000 house, w

Question

You currently pay $10,000 per year in rent to a landlord for a $100,000 house, which you are considering purchasing. You can qualify for a loan of $80,000 at 9% if you put $20,000 down on the house. To raise money for the down payment, you would have to liquidate stock earning you a 15% return. We neglect other concerns, like closing costs, capital gains, and tax consequences of owning.Given the described situation, determine whether it is better to rent or own. Show all your calculations and logical arguments.

Explanation / Answer

Answer is

three things you miss....rate of ascent of the lodging market and residency of the credit. what's more, your future venture boulevard...

i assume lodging market ascends as quick as stocks furthermore that the tunure is 10 years furthermore that your venture s adequately at 10%.

1. don't

estimation of rent paid toward the end of 10 year is 10000 * [1.1 ^10 - 1]/0.1 =159374

estimation of the house toward the end of 10 years is 100000 * 1.15^10 = 404555

estimation of stocks 20000*1.15^10 =80911

at that point you are + house - 483018

2. do

EMI for a long time with 9% would be 12.5% p.a. ie. 10000 p.a. also, esteem will be 159374

estimation of stocks you sold will be 80911

At that point you are + house - 240285

this shows purchasing a house now is 242733 $ beneficaial after 10 yeras [ effectrively, you lose $ 93584 right now by not purchasing]

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