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

2014

Question
(4) Principal Outstanding (5a) NPV - No Change in Price
Initially After 2 years After 5 Years After 10 Years 2 years 5 years 10 years
Purchase Price $600,000 Selling Price $600,000 $600,000 $600,000
Legal fees 2000 Realtor Fees (@5%) $30,000 $30,000 $30,000
Deed transfer tax (@3%) Other Selling fees $2,000 $2,000 $2,000
Down Payment (20%) Princ OS $0 $0 $0
Total Due at Closing Enter as +C7+C8+C9 Net Proceeds $568,000 $568,000 $568,000
Amortization Period (Years) 25 23 20 15
Payment Frequency 12 12 12 12 Funds at Closing $0 $0 $0
Number of Payments remaining 300 276 240 180 Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing $0 $0 $0

Mortgage Amount Princ OS $0.00 $0.00 $0.00 Net FV 568000.00 568000.00 568000.00

Quoted Rate PV of Future Net (NPV) 568000.00 568000.00 568000.00

Eff. Monthly rate 0.0000000
(5b) 10% down, back to 600k, then up 10%
(1) MonthlyMortgage Payments $0.00 2 years 5 years 10 years
Selling Price 540000.00 600,000.00 660,000.00
Monthly Condo Fees Realtor Fees (@5%) 27,000.00 30,000.00 33,000.00
Monthly Taxes Other Selling fees 2,000.00 2,000.00 2,000.00
Monthly Repairs etc. Make sure this amount is monthly Princ OS 0.00 0.00 0.00
Net Proceeds 511,000.00 568,000.00 625,000.00
Total Monthly Payments if Buy $0.00
Funds at Closing 0.00 0.00 0.00
Monthly Rent Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing 0.00 0.00 0.00

Net Additional Payments [Note: This is a formula which results in a number] Net FV 511,000.00 568,000.00 625,000.00

(2) Monthly Opportunity Costs of PV of Future Net (NPV) 511,000.00 568,000.00 625,000.00
(Closing Costs + Down Pmt)
(5c) Condo price increases 2% annually
(3) TOTAL Additional Monthly CF "costs" $0.00 2 years 5 years 10 years
Selling Price 624,240.00 662,448.48 731,396.65
Realtor Fees (@5%) 31,212.00 33,122.42 36,569.83
Other Selling fees 2,000.00 2,000.00 2,000.00
Note: Any tax benefit or expense has been ignored in this analysis. Princ OS 0.00 0.00 0.00
Net Proceeds 591,028.00 627,326.06 692,826.82

Funds at Closing 0.00 0.00 0.00

Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing 0.00 0.00 0.00

Net FV 591,028.00 627,326.06 692,826.82

PV of Future Net (NPV) 591,028.00 627,326.06 692,826.82

(5d) Condo price increases 5% annually

2 years 5 years 10 years
Selling Price 661,500.00 765,768.94 977,336.78
Realtor Fees (@5%) 33,075.00 38,288.45 48,866.84
Other Selling fees 2,000.00 2,000.00 2,000.00
Princ OS 0.00 0.00 0.00
Net Proceeds 626,425.00 725,480.49 926,469.94

Funds at Closing 0.00 0.00 0.00

Opportunity Cost of Extra Payments Incl. Funds Used at Initial Closing 0.00 0.00 0.00

Net FV 626,425.00 725,480.49 926,469.94

PV of Future Net (NPV) 626,425.00 725,480.49 926,469.94