Chapter 17, Problem 3CC

Summary Introduction

Case summary:

J and R arrived home after visiting colleges for the third weekend in a row with their triplet. They are considering state university or community college. Triplets are leaning towards state university which will help in tuition fees but that is a 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:

Financial benefits for J and R if they decide to purchase the house.