Mika wants to buy a condominium. He has the choice of buying it now or renting it with the option to buy at the end of 3 years. If he buys now, he could put $0 down, but he must pay closing costs of $7,100. His monthly mortgage payment will be $675. Mika decides to rent instead of buy because it is the cheapest option over the first 3 years. His move-in costs are one month's rent and a $750 security deposit, and he would still need to pay his first month's rent on top of these move-in costs. To the nearest dollar, what is the maximum amount of monthly rent payment he could pay?

Question

Raegan

Business

13 January, 01:04

Mika wants to buy a condominium. He has the choice of buying it now or renting it with the option to buy at the end of 3 years. If he buys now, he could put $0 down, but he must pay closing costs of $7,100. His monthly mortgage payment will be $675. Mika decides to rent instead of buy because it is the cheapest option over the first 3 years. His move-in costs are one month's rent and a $750 security deposit, and he would still need to pay his first month's rent on top of these move-in costs. To the nearest dollar, what is the maximum amount of monthly rent payment he could pay?

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Julio Marquez · Answer 1

The easiest way to conceptualize this, is to think of the total payments he makes by the end of 3 years. If he buys, the calculation is pretty straighforward: he will have to pay 7100$ upfront and have a mortgage payment of 675$ for 3*12=36 months. Suppose now he pays x for rent; His cost will be (x+750$) upfront and then he will also pay 36*x in rent payments. If the rent option is to be better, we have that:

36x+750+x<7100+36*675

37x<7100+36*675-750

37x<30650

x<828$

This is the maximum amount he can pay for rent so that the first 3 years he pays less for the condominium than he would pay if he had bought it.