Critical Thinking Assignment: Buy or Rent?

This assignment asks ESL students to combine several critical thinking skills into one task by answering a question: is it better to rent an apartment or buy?

Writing Activity Introduction

This case study activity asks students to evaluate two housing options: buy an apartment and rent. The student’s evaluation should be based on the assumptions and financial data presented in the case.

There is no obvious answer to the question. The correctness depends on how students interpret the data and, in effect, balance short term financial rewards with long term risk-reward.

Correctness also depends on the organisational strength, clarity of thought and degree of persuasion in the students’ writing.

The final output is a 1-2 page report.

About the Currency and Culture

I’ve developed this activity using Korean won as the currency. If you want to switch to US dollars, for instance, simply remove the last 3 zeros from the figures. That gives you a quick approximate conversion to USD.

The case study talks about a deposit (or key money) for rentals. In Korea, it’s normal to put down a deposit when renting an apartment, home or office space. At the end of the lease, the deposit (hopefully) is returned. In some countries, that practice is illegal.

If the deposit reference doesn’t make sense in your location, delete the deposit and change the monthly rent from 700,000 to 1,200,000 won.

The issue of deposits brings up the potential issue of opportunity costs, an important part of any financial analysis. For most students at the beginner to intermediate levels, I avoid discussing opportunity cost; it’s an unnecessary level of complexity.

Workflow

Introduce Assignment to Students

Your task is to answer this question: is it better to buy an apartment or rent?

To answer this question, you will read a short case study. It provides all the information you need. No extra research is required. The case study includes financial data that you need to understand. Some basic math skills are required. 

Final Report Description

You will write a professional style report (not an essay). It should be about 1-2 pages. Your analysis will probably include 4 sections.

  1. A summary of the problem.
  2. Compare and contrast the advantages and disadvantages of buying an apartment versus renting an apartment.
  3. An analysis of the financial consequences of each option.
  4. Your recommendation with an argument and reasons.

There are many factors to consider. Money is important, but it’s not the only thing.

Case Study Information

Here are the main assumptions and some numbers to help your analysis.

  1. Jack and Jill are in their late twenties. They are married with no children. They each have a full time job.
  2. Their combined monthly net income is 4.3 million won.
  3. Total cash 80,000,000 won and no debt.

They found two similar apartments in the same building. The apartment building is 11 years old. Each apartment has 3 bedrooms and 2 bathrooms. Both apartments are close to a subway station and have parking, but they are not close to shopping or schools.

Apartment A

Apartment A is for sale. The price is 300,000,000 won.

If they buy Apartment A, they will use 80 million won as a down payment and borrow the rest of the money from the bank. Each month they would pay 1,000,000 won in interest.

Apartment B

If they rent the Apartment B, they will use their 80 million won as a deposit and sign a two-year contract. Plus, they will need to pay 700,000 won per month for rent. After 2 years they can leave and move to another apartment, or perhaps sign a new contract and stay in the same place (and probably pay more monthly rent).

Family Budget

Their monthly net income is 4.3 million won.

Their monthly budget is 2.3 million won. That does not include savings, vacations or unexpected expenses like annual holiday celebrations. These are minimum monthly expenses.

  1. Food – 700,000
  2. Utilities and maintenance – 300,000
  3. Transportation – 300,000
  4. Insurance – 400,000
  5. Entertainment – 200,000
  6. Clothes – 100,000
  7. Other – 300,000

Total 2,300,000 won

 

Good luck.

Leave a Comment

IMPORTANT! To be able to proceed, you need to solve the following simple math (so we know that you are a human) :-)

What is 12 + 9 ?
Please leave these two fields as-is:

This site uses Akismet to reduce spam. Learn how your comment data is processed.