Hi everybody, how would you structure the following case?
"You want to advise your mother on whether buying a house for 300k$ or rent one at 800$/month. She has 300k$ in her bank account"
I think this is the classic investment analysis between two options, so I would ask some more questions about the woman's income, other constraints, extra costs deriving from the two options, willingness to invest that amount of money elsewhere in the rent scenario.
All that said, I would assume that the observation period is 20 years (assuming the woman is at age 60 with 80 years of life expectancy), and I would proceed in calculating the NPV of the two options.
At this stage I have some doubts about the usage of the discount rate (should I apply it or should I consider that house-related prices would simply "adjust" during time?).
How would you go further in the case?
Thanks in advance