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There are many different scenarios that we have to determine the most productive way of deploying capital, such as:

There are many different scenarios that we have to determine the most productive way of deploying capital, such as: buying versus leasing a car, buying insurance whole life versus term, and of course buying versus renting a home.

You are to create a spreadsheet that tracks the cash flows of a person that had a home buying experience over a 10 year period and determine whether they would have been better off buying or leasing their home and investing in some other investment.

The scenario is as follows:

Pick a house from Zillow, Realtors.com, or any other website that sold in 2008. Include the a print of the page. Assume you sell the property today based on current estimate. 

 

The house was bought with an 80% mortgage with an 4% interest rate and 30 year amortization. Taxes and insurance in the first year were 2.2% of the purchase price. Initial rent is based on estimate by Zillow as a percentage of your current value.

              

The investment can be anything you like, S&P Index, Home Depot Stock, gold, etc (if you pick a stock, it cannot be more than 25% of your total portfolio). If you use a specific stock, you must track price, splits and dividends. 

 

Take the cash flows from the houses over time and compare that to the cash flows that you would have received had you not bought a house but rented a home and invested instead. You should use various metrics to determine which worked out better. NPV, IRR, Annual Cash on Cash Return and any other metric that you decide is useful.   If you have to add cash then add to your alternative investment if cash comes out of the real estate then it comes out for both investments.

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