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Section 12: Real Estate and Lending 133
File name: hp 12c_user's guide_English_HDPMBF12E44 Page: 133 of 209
Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm
16. Press t to compute the yield on your investment in the house.
*
17. Press t to compute the value of a savings account or other investment.
18. Compare the value of the hypothetical savings account to the net proceeds of
the sale of the house. Examine the sign and magnitude of the yield to arrive
at your decision.
19. To change data and repeat the calculations, store the changed values in the
appropriate registers and go to step 12.
Example:
You are being transferred for 4 years to a distant city and are faced
with the decision of whether to rent or to buy a house. A quick survey of the
housing market indicates that you can purchase an acceptable house for $70,000
with a $7,000 down payment on a 30 year mortgage at 12% interest. The closing
costs would be about $1200. Selling costs include a 6% commission for resale
and miscellaneous other fees that amount to another 2% of the sale price. Housing
in the area is appreciating 10% per year. Property taxes would be about $110
per month, and you estimate that maintenance would cost an additional $65 per
month.
An alternative would be to rent a similar dwelling at $400 per month and to invest
the difference between the purchase cost and rent at 6
1
/
4
% interest. Your personal
income tax rate (marginal) is 25% Federal and 5% State. Which alternative is
more financially attractive
?
Keystrokes Display
fCLEARH
0.00
7000?1
7,000.00
Down payment.
30?2
30.00
Life of mortgage.
12?3
12.00
Interest rate.
110?4
110.00
Property taxes.
65?5
65.00
Monthly expenses.
1200?6
1,200.00
Closing costs.
8?7
8.00
Resale costs (as a percentage).
400?8
400.00
Rent.
6.25?9
6.25
Savings interest rate.
30?.0
30.00
Tax bracket.
fCLEARG
30.00
Clear financial registers.
*
If the calculator displays a negative result or Error 5 when solving for yield then your
investment has resulted in a loss. The amount of interest earned on the alternative investment
is not taken into account in this calculation.