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Group 6: Buying vs Building a house

Group 6: Buying vs Building a house

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Group 6: Buying vs Building a house

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  1. Group 6: Buying vs Building a house Group members: Organizer Anna Bullara Techies Tri Truong Richard Morrow Summarizers Almautaz Rahman Eugene Pyu

  2. Building Lot • Location: City of Monrovia • Lot size: 6,500 sqft • Price: $ 160,000 • Cost to build: Avg $150/ squarefoot • Upgrade: $50,000-> $100,000

  3. House • Location: City of Monrovia • House size: 2400 sqft • Lot size: 6500 sqft • 4 Bedrooms • 3 bathrooms • Price: $800,000

  4. Methodology • Comparing between the cost of building a house from scratch and buying an already-built house in the same location. • Comparing which one will yield a better profit when selling in 10 years. The rate of inflation of 3% will be considered in our calculations.

  5. Assumptions • Inflation: 3% • Property Tax increase: 2% per year • Insurance increase: 2% per year • Interest rate: 6% • MARR: 7% • Appreciation: 5%

  6. Cash Flow Diagrams Resale MARR = 7% Appreciation: 5% n = 120 Monthly Payment Down Payment I=3% Maintenance I=2% Insurance I=2% Property tax

  7. Sensitivity Analysis • MARR: 7% • Adjustment: + 0.5% • Result: Buying a house is more profitable.

  8. Sensitivity Analysis (cont) • Appreciation value: 5% • Adjustment: + 0.5% • Result: Buying a house is more desirable.

  9. Sensitivity Analysis (cont) • Appraised value: $620,000 -> $800,000 • Result: Building a house is more favorable when the house is appraised at $780,000 or higher.

  10. Resources • Internet • www.imrmls.com • www.century21.com • www.bankrate.com • Real estate agents • General contractors

  11. Conclusion • Through the use of all the resources stated previously, we were able to do a thorough sensitivity analysis. • With the sensitivity techniques that we used, we’ve found that 2 out of the 3 analysis indicated that buying a house is more profitable.