Abstract
The case provides a systematic method to a classical real estate decision of households: Should they buy a home or not? The case is a quasi Buy-versus-Rent analysis, and can serve to debate the pros and cons of homeownership as well. The analysis is conducted (1) for owner-occupiers (to assess whether they should buy or rent the same unit); and (2) for investors who must decide whether home-buying would be financially prudent for them or not.
Additional Information
| Product Type | Case |
|---|---|
| Reference No. | F&A0565(B) |
| Title | Home, Sweet Home: Guptas' Real Estate Decision (B) |
| Pages | 8 |
| Published on | Mar 28, 2022 |
| Authors | Das, Prashant; |
| Area | Finance and Accounting (F&A) |
| Discipline | Accounting, Economics, Finance |
| Learning Objective | A salaried, upper-middle class couple in its 40’s is deciding whether to buy their home near their hometown, away from the city where they work. As they work in a distant city, the home they buy will be rented out. As such, homeownership appears to be an investment decision (versus consumption). They collect relevant market data and conduct financial analysis to assess the financial feasibility and prudence of homeownership. The raw data and set of information available offer conflicting signals related to homeownership. The only way out is to develop a detailed pro-forma spreadsheet. • Time value of money • Mortgage loan calculations • Estimation of the opportunity cost of capital of households • Tax considerations related to leveraged homeownership |
| Keywords | Home; Mortgage: Rent; Buy; Time Value of Money |
| Country | India |
| State | Punjab |
| City | Chandigarh |
| Access | For All |
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