Microsoft Office Tutorials and References
In Depth Information
PRACTICE EXERCISE—TED AND ALICE'S HOUSE PURCHASE DECISION
Non-Housing Living Expenses
This value represents Ted and Alice
s estimate of all their other
living expenses for 2012 and 2013.
Mortgage Amount for Home Purchase
Real Estate Taxes and Insurance on Home
A lender has given Ted and Alice estimates for these
values; they are usually paid monthly with the house mortgage payment. The money is placed in
an escrow account and then paid by the mortgage company to the state or county and insurance
This value is Ted and Alice
s estimate for 2012 and 2013 based
on their 2011 bills.
Currently the apartment rent includes fees for water, sewer, and
trash disposal. If they get a house, Ted and Alice expect the utilities to be higher.
House Repair and Maintenance Expenses
In an apartment, the landlord is responsible for repair
and maintenance. Ted and Alice will have to budget for repair and maintenance on the house.
Your spreadsheet should have the inputs shown in Figure C-33. An explanation of line items follows the
Rental Occupancy (H=High, L=Low)
When the housing market is depressed (in other words,
people are not buying homes), rental housing occupancy percentages are high, which allows
landlords to charge higher rents when leases are renewed. Ted and Alice think their rent will
increase in 2012. The amount of the increase depends on the Rental Occupancy. If the
occupancy is high, Ted and Alice expect to see a 10% increase in rent in both 2012 and 2013. If
occupancy is low, they only expect a 3% increase.
First Time Buyer Bond Loans Available (Y=Yes, N=No)
As described earlier, when housing
markets are depressed, local governments will frequently pass a bond bill to provide low-interest
mortgage money to first-time home buyers. If the bond loans are available, Ted and Alice can
obtain a 30-year fixed mortgage at only 3%, which is half the interest rate they would otherwise
pay for a conventional mortgage.
Summary of Key Results Section
Figure C-34 shows what key results Ted and Alice are looking for. They want to know their End-of-year Cash
on Hand for both 2012 and 2013 if they decide to stay in the apartment and if they decide to purchase the
Summary of Key Results section
These results are copied from the End-of-year Cash on Hand sections of the Income and Cash Flow
Statements sections (both for renting and buying).