Based on the following data, would you recommend buying or renting? Rental Costs - Annual costs - Annual rent $7,380, Insurance $145. Security deposit $ 650. - Buying Costs - Annual mortgage payments $9,800 ($9,575 is interest), Property taxes $ 1,780, Down payment / closing costs $4,500, Growth in equity $225, Insurance / maintenance $1,050, Estimated annual appreciation $ 1,700. Assume an after tax savings interest rate of 6 percent & a tax rate of 28 percent.

net annual cost of renting is less than that of purchase

so we can say it is beneficial to rent the property

Explanation:

we know that that Costs Associated with Buying a Property

Annual Mortgage Payment = $ 9800 (out of $9575 is interest payment)

Property Taxes = $ 1780

Down Payment = $ 4500

Insurance / Maintenance = $1050

Total Costs = 17,130

minus here Tax Savings on Mortgage Interest = $2,681

that is (9575 * 28%)

Tax Savings on Property Taxes = $498.40 i. e (28% of 1780)

Growth in Equity = $225.00

Estimated Annual appreciation = $ 1,700.00

Net Annual cost on purchase = $ 12,025.60

Costs Associated with Renting a Property Annual Rent = $ 7,380.00

Security Deposit = $ 650.00

Insurance = $ 145.00

Total Costs = $ 8,175.00

Less Interest receivable on Down payment amt invested = $ 270.00

i. e (4500 6% after tax rate)

Net Annual Cost on Renting = $7,905.00

so that here net annual cost of renting is less than that of purchase

so we can say it is beneficial to rent the property