Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications, August 11,

2014
Question

Purchase Price
Legal fees
Deed transfer tax (@3%)
Down Payment (20%)
Total Due at Closing
Amortization Period (Years)
Payment Frequency
Number of Payments remaining

(1)

Net FV
PV of Future Net (NPV)
(5b) 10% down, back to 600k, then up 10%
2 years
5 years
10 years

MonthlyMortgage Payments
Monthly Condo Fees
Monthly Taxes
Monthly Repairs etc.

10 years

Funds at Closing
Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing
Princ OS

4%

(5a) NPV - No Change in Price

2 years
5 years

After 10 Years
Selling Price
Realtor Fees (@5%)
Other Selling fees
Princ OS
Net Proceeds

25
12

Mortgage Amount
Quoted Rate
Eff. Monthly rate

(4) Principal Outstanding

After 2 years
After 5 Years

Initially
600000
2000

1055
300
50

Selling Price
Realtor Fees (@5%)
Other Selling fees
Princ OS
Net Proceeds

Total Monthly Payments if Buy

Monthly Rent

3000

Funds at Closing
Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing

Net Additional Payments

Net FV

(2)

Monthly Opportunity Costs of

240000 (Closing Costs + Down Pmt)

PV of Future Net (NPV)

(3)

TOTAL Additional Monthly CF "costs"

(5c) Condo price increases 2% annually

2 years
5 years
10 years
Selling Price
Realtor Fees (@5%)
Other Selling fees
Princ OS
Net Proceeds
Funds at Closing
Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing
Net FV
PV of Future Net (NPV)
(5d) Condo price increases 5% annually
2 years
5 years
10 years
Selling Price
Realtor Fees (@5%)
Other Selling fees
Princ OS
Net Proceeds
Funds at Closing
Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing
Net FV
PV of Future Net (NPV)