| Course | MT421 Financial Planning |
|---|---|
| Unit | Unit 7 |
| Paper type | Rent versus buy analysis |
| Length | About 1,210 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT421 Unit 7
Break-Even Early in Year Eight: An MT421 Unit 7 Rent Versus Buy Analysis for a $229,000 Knoxville Condominium
[Student Name]
Purdue University Global
MT421: Financial Planning
Unit 7 Rent Versus Buy Analysis
[Instructor Name]
[Date]
Kayla Brooks, the condominium and the comparable rental are a composite; the property tax rate is an assumption to be checked against current Knox County and city rates, results come from the script described, and the sources cited are real.
The Question and the Comparison
Kayla asked in Unit 4 how much she would need to save to buy in five years. This analysis asks a prior question: if she could buy now, would buying leave her wealthier than renting, and after how long? The comparison is like for like. The condominium is a two-bedroom unit of about 1,100 square feet in a complex near her office. The rental is a two-bedroom apartment of similar size in the same part of the city at $1,525 a month plus $15 of renters insurance. Setting her current $1,195 one-bedroom against a larger owned home would tilt the answer toward renting before any arithmetic began, so the current apartment is left out.
Assumptions
The price is $229,000 with 10 percent down, $22,900, and a 30-year fixed mortgage of $206,100 at 6.4 percent. Closing costs are 3 percent of the price, $6,870, so a buyer needs $29,770 in cash. Property tax is assumed at 0.8 percent of value a year. Insurance is $95 a month and the association fee $210 a month, both rising 3 percent a year. Maintenance is 0.5 percent of value a year, lower than for a house because the association covers the roof and exterior. Mortgage insurance is priced at half a percent of the original loan annually and stops by federal rule once the balance is scheduled to drop below 78 percent of the purchase price. Selling costs at the end are 7 percent of the sale price. Home values and rents both rise 3 percent a year. Money not tied up in the home earns 6 percent a year.
Each assumption is a choice, and the sensitivity section shows which ones the answer depends on.
The First Month
Owning costs $1,928.14 in the first month. The mortgage payment of principal and interest is $1,289.17. Property tax adds $152.67, maintenance $95.42, insurance $95, the association fee $210 and mortgage insurance $85.88. Of the mortgage payment, $1,099.20 is interest and only $189.97 reduces the loan.
Renting costs $1,540. The owner pays $388 more each month at the start.
A common error is to compare the rent with the mortgage payment alone. At $1,289, the payment looks cheaper than renting by about $250 a month, which is the reverse of the true comparison once the other six costs are counted.
How the Two Paths Are Built
The script tracks two people with identical incomes, month by month for fifteen years. The buyer pays every cost of ownership, and her wealth at any point is the home's value less 7 percent selling costs, less the loan balance. The renter starts by investing the $29,770 the buyer spent at closing. Each month she also invests the difference between what owning would have cost and what renting costs, so both people spend the same amount on housing in every month. Her wealth is the value of that investment account.
This is the step most rent versus buy comparisons leave out. Beracha and Johnson (2012) compared buying with renting and investing the difference across three decades of U.S. housing data and found that renting came out ahead in a large share of periods, mainly because the renter's invested cash grew while the buyer's equity built slowly. Without the renter's investment, buying wins by default.
The renter's advantage is the down payment and the monthly difference, invested; leave either out and owning wins without a fair contest.
Wealth Year by Year
At the end of year one, the renter is ahead by about $20,800. The buyer has paid closing costs she cannot recover and would pay selling costs if she sold, while her loan has fallen by only a little over $2,300.
The renter's lead shrinks each year as the home appreciates and the loan amortizes. At year three she is ahead by about $15,800, and at year five by about $9,300. The paths cross in month 88, early in year eight. At year eight the buyer is ahead by about $3,500, and at year ten by about $15,600.
Mortgage insurance ends in month 109, near the end of year nine, when the balance falls below $178,620. From then on the buyer's monthly cost drops by about $86, which widens her lead.
Taxes
The mortgage interest deduction is often cited as a reason to buy, but it does not help Kayla. In the first year she would pay about $13,122 in mortgage interest and $1,832 in property tax, a total of about $14,954. As a single filer, she can take a standard deduction of $15,750 for 2025 (Internal Revenue Service, 2026), and she would itemize only if her deductions exceeded it. They do not, so the deduction adds nothing, and the analysis includes no tax benefit from owning (Internal Revenue Service, 2025).
Sensitivity
The break-even depends heavily on two assumptions, appreciation and the return on the renter's investment.
With appreciation at 3 percent, the break-even moves from 5.8 years at a 4 percent return, to 7.3 years at the base 6 percent, to 10.6 years at 8 percent.
With appreciation at 2 percent, the break-even comes at 9.2 years with a 4 percent return and 11.8 years with 6 percent, and it does not arrive within fifteen years at 8 percent.
With appreciation at 1 percent, buying catches up only at a 4 percent return, after 13 years.
With appreciation at 4 percent, the break-even falls to between 4.0 and 5.7 years across the three returns, and at 5 percent it falls to between 3.0 and 3.8 years.
No single appreciation figure should be read as a forecast. The table shows the range in which the decision turns.
What Owning Offers That the Numbers Miss
The comparison leaves out some real differences. Owning fixes the largest part of the housing cost for thirty years, while rent can rise faster than 3 percent. Sinai and Souleles (2005) argued that ownership works as a hedge against rent risk, which is worth most to people who expect to stay in one place for a long time. Against that, owning ties up Kayla's savings in a single asset and makes moving expensive.
Recommendation
Buying makes sense for Kayla only if she expects to stay in Knoxville for at least eight years and can make the purchase without draining her reserves. Under the base assumptions she would lose money relative to renting if she sold in the first seven years, and more if appreciation is slower than 3 percent. She does not have the $29,770 today, and the Unit 4 problem set showed it would take more than her surplus to save it within five years. The recommendation is to keep renting, finish the debt plan and revisit buying after year five, with the script rerun on that year's prices and rates.
References
Beracha, E., & Johnson, K. H. (2012). Lessons from over 30 years of buy versus rent decisions: Is the American dream always wise? Real Estate Economics, 40(2), 217-247. https://doi.org/10.1111/j.1540-6229.2011.00321.x
Internal Revenue Service. (2025). Home mortgage interest deduction (Publication 936). https://www.irs.gov/publications/p936
Internal Revenue Service. (2026). 1040 and 1040-SR instructions: Tax year 2025. https://www.irs.gov/instructions/i1040gi
Sinai, T., & Souleles, N. S. (2005). Owner-occupied housing as a hedge against rent risk. Quarterly Journal of Economics, 120(2), 763-789. https://doi.org/10.1093/qje/120.2.763
MT421 Unit 7 instructions, in plain terms
Unit 7 asks students to compare renting and buying a home for a client over a stated horizon. Instructors expect a like-for-like comparison, setting a home against a rental of similar size and location. Every cost of ownership belongs in the monthly figure: principal and interest, property tax, insurance, association fees, maintenance and mortgage insurance, plus closing and selling costs. The renter's alternative use of the down payment is the opportunity cost of buying and must be included. Most prompts want a break-even point rather than one verdict, and sensitivity to appreciation and investment returns. Whether the buyer would itemize deductions should be checked rather than assumed. The recommendation should depend on how long the client expects to stay. Spreadsheets and scripts are both accepted.
How this MT421 Unit 7 example is built
This sample states the question and defends the comparable rental before listing every assumption in one paragraph. The first-month comparison breaks out each cost of owning and warns against comparing rent with the mortgage payment alone. A section explains how the two paths are built, with the renter investing the difference, and cites Beracha and Johnson's three decades of buy versus rent data under a highlighted line on why the investment matters. Wealth is reported year by year to the crossing in month 88. A tax section shows why the deduction adds nothing at a $15,750 standard deduction. The sensitivity section moves the break-even from about three years to beyond fifteen. Sinai and Souleles supply the rent-risk argument, and the recommendation waits five years.
Where the points sit in the MT421 Unit 7 rubric
Rent versus buy analyses are usually graded on complete costs, a fair comparison, inclusion of the opportunity cost, a break-even with a horizon and sensitivity. Comparing rent with the mortgage payment alone is the error graders check for first, because it reverses the answer. Rubrics reward counting the return on the down payment, since leaving it out tilts the result toward buying. Credit goes to a comparable rental rather than the client's current smaller apartment. A break-even point stated in years, with ranges for appreciation and returns, scores better than a single forecast. Checking the itemized deduction honestly shows care. A recommendation tied to how long the client expects to stay earns judgment points, and APA 7 citations finish the grade.
MT421 Unit 7 help from the desk
The most frequent weak analysis puts the mortgage payment beside the rent, finds owning cheaper and stops, leaving out several hundred dollars a month of other costs. Another common mistake treats the down payment as free money, so the renter never earns anything on it. Students often compare a small current apartment with a larger home and call the difference the cost of owning. A single appreciation rate defended as a prediction leaves the conclusion fragile. Many papers assume the mortgage interest deduction helps without checking whether the client would itemize. Before submitting, rerun your comparison with appreciation two points lower than your base. If the answer flips, the recommendation should say how long the client must stay for buying to make sense.
Get an MT421 Unit 7 example written to your instructions
Home price, rent and rates, as the Unit 7 case states them, are enough for a free first custom rent versus buy analysis, modeled in Python or Excel with every owning cost counted and the down payment's forgone return included. It lands within 24-48h, following your rubric, and blank inputs are filled with flagged assumptions. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT421 Unit 7 questions, answered
Why include the return on the down payment?
Because the renter keeps that money and can invest it, while the buyer ties it up in the home. Ignoring the return treats the down payment as free, which biases the comparison toward buying. State the rate you assume, explain it, and test a higher and lower figure, since the result is sensitive to it.
What appreciation rate should an MT421 housing analysis assume?
Use the prompt's figure if it gives one. Otherwise choose a modest long-run rate, cite a source for local or national history, and test alternatives. The sample uses 3 percent with 1 and 5 percent as tests. Presenting one rate as a prediction is weaker than showing how the answer changes across a sensible range.
Should the mortgage interest deduction be included?
Only if the buyer would itemize. For many buyers the standard deduction exceeds their itemized total, so mortgage interest produces no tax saving at all. In the sample, first-year interest and property tax together fall just short of the standard deduction, so no benefit is counted. Check your client's figures for the year and say what you found.
Where can I find a free MT421 Unit 7 sample paper?
The full MT421 Unit 7 rent versus buy analysis is here, finding that a $229,000 Knoxville condominium overtakes renting early in year eight.
Why does the MT421 Unit 7 sample give the buyer no mortgage interest deduction?
First-year interest and property tax total about $14,954, below the $15,750 standard deduction, so itemizing would save Kayla nothing.