W2_SSG_Rental House in Suburb or Apartment in Jakarta


PROBLEM DEFINITION

Currently I am living in suburb of Jakarta called Sawangan located about 25 km from my Office in South Jakarta. I have two options, whether I will extend the contract for next one year or rent an apartment with monthly payment in Central Jakarta close to office, where I can walk directly to office by walking. In order me able to decide whether to extend the current contract or rent a apartment in central Jakarta, I would like to make an exercise which options is more beneficial in term of cost of living.

DEVELOPMENT OF FEASIBLE ALTERNATIVES

In order to decide where you living, there are some variables that needs to be considered, i.e. rent cost, transportation, working transport duration, fuel consumption. To decide which options that I will choose is based on the cheapest in term of Net Present Value.

DEVELOPMENT OF OUTCOMES FOR EACH ALTERNATIVE

In order to be able to see the total cost of each option, below is the cost calculation by using MsExcel. Major consideration is the rental cost of apartment (option2), trips duration (option1), hourly cost (option1), monthly interest rate (option 1&2), fuel consumption (option1). Safety factor and other aspects that are not considered below is assumed to be equal impact to Option 1 & Option 2.

SELECTION OF CRITERIA

Below is the spending calculation on monthly basis of those two options (option-1. Continue existing house rental or option-2. Rental new apartment in Jakarta).

091413_1026_W2SSGRental1.png

Table 1. General Term that applied in Option 1 and option 2

091413_1037_W2SSGRental2.png

Table 2. Option-1, continue current house contract.

091413_1026_W2SSGRental3.png

Table 3. Option-1, Spending Plan

091413_1029_W2SSGRental4.png

Table 4. Option-2, Rent new apartment in Jakarta.

091413_1026_W2SSGRental5.png

Table 5. Option-2, Spending Plan

ANALYSIS FOR THE ALTERNATIVES

In order to be able to choose the best alternatives, there are two majors consideration  i.e. total expend and Net Present Value.

SELECTION ON THE PREFERRED ALTERNATIVES

Based on above calculation, it is showed that total cost based on spending plan is equal IDR 88,086,698, but the total value of NPV option-1 equal to 83,549,729 and option-2 equal to 82,797,577. Based on above comparison the preferable is option-2 (NPV is less).

PERFORMANCE MONITORING AND POST EVALUATION RESULT

In order to be able to maintain the alternatives to option-2, we have to make sure that price fluctuation is zero. Once, the price fluctuation greater than 0, we have to re-calculate the options.

REFERENCES

Primelocation.(2013). How to rent a house.Access September 11, 2013 from

http://www.primelocation.com/guides/renting/how-to-rent-a-house/

Ralf Span.(2008). Making Investment Decision with the Net Present Value.Access September 13, 2013 from

http://university.akelius.de/library/pdf/making_investme_ralf_spann.pdf

ehow.(2013). How to Calculate the NPV of a Rental Property.Access September 13, 2013 from

http://www.ehow.com/how_7732723_calculate-npv-rental-property.html

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1 Comment

Filed under Sutoyo S, Week 02

One response to “W2_SSG_Rental House in Suburb or Apartment in Jakarta

  1. Hi Pak Sutoyo,
    Nice case study and you followed our step by step process very well and you did a nice job on your citations but I’m not convinced that NPV or any of the other purely financial tools is the “best” or appropriate method? ESPECIALLY when you are only analyzing it on a one year basis.

    I can see if you used one of the Multi-Attribute decision tools from Chapter 14 or the “Benefit : Cost” Ratio method from Chapter 10, but making a decision which involves the value of your time (lost opportunity costs?) is not normally something done using pure financial measurement tools

    Bottom line, I will accept this posting as you did a good job on your analysis but I think if you took the same case study and applied one of the other decision making tools, I think you will find that while the outcome may very well be the same, using those other tools will make a much stronger case than purely financial.

    What do you think?

    BR,
    Dr. PDG, Jakarta

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