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Question
Rent or buy
The Andersons want to move to a new apartment in Matrix Cove, a beautiful waterfront development project. Identical rental and for sale units are available. The monthly rent is $2,000 for their chosen unit. Rents have been rising at 3% per year. An identical unit can be purchased for $250,000 with 20% down. The balance can be financed at 5% for 30 years fixed. Property taxes are $250 per month. Other costs of ownership are $500 per month. Both property taxes and other costs have been rising at 3% per year According to their broker, units have been appreciating at 5% per year. Assume income tax rate of 35%, capital gains tax rate of 15% and the costs of selling the home are 6% of the gross sales price. Should they rent or buy assuming they will stay in the unit for five years. Does your view change if the house does not appreciate over the five year period, what if it decreases in value at 2% per year?
Answer
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