2
7.5
points
Mc
Graw
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Problem 7-4
Inspection
Title search
Renovation
Landscaping
Loan interest
Insurance
Property taxes
Selling expenses
An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for
following total expenditures during the next year.
$202,400 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the
Required A
Of
Required:
a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity..
believes that he could rent it (starting in year 2) and realize
b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He
net cash flow before debt service of $1,920 per month. However, he
be at the end of year 2 in order to earn a 20 percent IRR on equity?
would have to make an additional $7,920 in interest payments on his loan during that time, and then sell. What would the price have to
Complete this question by entering your answers in the tabs below.
Sale value of property
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OID
Required B
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2
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$ 536
1,072
13,000
equity.
The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on
Note: Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.
F3
#3
872
7,236
1,836
6,036
8,000
Answer is complete but not entirely correct.
F4
250,013
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