Chapter 17, Problem 1CC

Summary Introduction

Case summary:

J and R are arrived home from third weekend straight with their triplet touring colleges for their triplets. They are considering state university or community college. Triplets are leaning towards state university which will help in tuition fees but that are two hour car drive away. Due to the distance between home and college they are considering to buy a condominium near the college. They are trying to figure out whether this decision will be good or not. Eventually they decided to meet with financial planner JH and real estate broker AH as they are unfamiliar with the real estate investment opportunities.

Character in this case: J and R.

Adequate information:
Checking account: $5,000
Savings account: $47,000
Emergency fund savings account:
$40,000
House: $475,000
IRA balance: $85,000
Life insurance cash value: $125,000
Investments (stocks, bonds): $700,000
Car: $14,500 (J) and $18,000 (R)
J: $45,000 gross income ($31,500 net income after taxes)
R: $135,000 gross income ($97,200 net income after taxes)
Mortgage: $1,225
Property taxes: $500
Homeowner’s insurance: $300
IRA contribution: $300
Utilities: $250
Mortgage balance: $47,000
Credit card balance: $0
Car loans: $0
Food: $600
Gas/maintenance: $275
Entertainment: $300
Life insurance: $375

To determine: Compare direct and indirect investment in real estate and if they purchased a condominium or small house for triplet under which category will this purchase fall.