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Case Study
Case Study
Case Study
Julie Brown is a single woman in her late twenties. She currently rents an apartment in the
fashionable part of town for P20,000 a month. After considerable deliberation, she is seriously
considering the purchase of a condominium for 1.3 million. She intends to put 20 percent down
and expects that closing costs will amount to another P250,000, a commercial bank has agreed to
lend her money at the fixed rate of 7 percent on a 15-year mortgage. Julie would have to pay
property taxes of P51,600 a year (she is presently paying renter’s insurance of P23,650 per year).
In addition, she estimates that annual maintenance and upkeep expenses will be about 0.5 percent
of the price of the condo (which includes a P1,300 monthly fee to the property owner’s association)
Julie’s income puts her in the 25 percent tax bracket (she itemizes her deductions on her tax
returns), and she earns an after-tax rate of return on her investments of around 4 percent.
Questions:
1. Given the information provided above, evaluate and compare Julie’s alternatives of
remaining in the apartment or purchasing the condo.
2. Working with a friend who is a realtor, Julie has learned that the condos like the one she is
thinking of buying are appreciating in value at the rate of 3.5 percent a year and are
expected to continue doing so. Would such information affect the rent-or-buy decision
made in Question 1? Explain.
Ans: considering appreciation in value at the rate of 3.5 percent a year of the condo may
affect the decision significantly in favor of buying as a form of investment.
3. Discuss any other factors that should be considered when making a rent-or-buy decision.
Ans: factors include changes in house prices and rents, job security, plans for staying in the
city, and personal preferences among other factors.
4. Which alternative would you recommend for Julie in light of your analysis?
Ans: a detailed financial analysis based on the provided information and personal
circumstances will ultimately determine whether buying or renting is the better option for
Julie.