Analyzing financial opportunity

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Reference no: EM131810516

A couple bought their house 10 years ago for $165,000. At the time of purchase, they made a $35,000 down payment, and the balance was financed by a 30-year mortgage with monthly payments of $988.35. They expect to live in this house for 20 years, after which time they plan to sell the house and move to another state. Alternatively, they can sell the house now and live in a rental unit for the next 20 years. The house can be sold now for $210,000, from which an 8% real estate commission and $110,000 remaining loan balance and miscellaneous expenses will be deducted. If they stay in the house, the house can be sold after 20 years for $320,000 from which a 10% real estate commission and $10,000 miscellaneous expenses will be deducted. A comparable rental unit rents for $960 payable at the beginning of every month. No security deposit will be required of them to rent the unit, and the rent will not increase if they maintain a good payment record. They use an interest rate of 0.5% per month for analyzing this financial opportunity. Should they stay in the house or should they sell it and move into a rental unit? Contributed by Hamed Kashani, Saeid Sadri, and Baabak Ashuri, Georgia Institute of Technology

Reference no: EM131810516

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