Buying a Home Versus Renting an Apartment: A Case Study

An excellent way to apply the fundamental concepts of engineering economy is to evaluate the question of buying a home versus renting an apartment. Depending upon certain conditions, either alternative may be economically advantageous. Some of the variables include the mortgage and inflation rates, movements in house and apartment prices, and income tax effects. The decision is evaluated in terms of both personal and business use of the home. Plots of the present worth of the cash flow versus years lived in the home will be used to show the sensitivity of the breakeven point to each variable. The most important variables are the cash difference between the monthly mortgage payment and the apartment rent, the inflated interest rate, and the house price inflation rate. Based on our results, the decision to use part of the house as a business should not affect the decision to purchase the house.