Q

orhework: Residential Real Estate Fundamentals Assignment i

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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 Required B

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.

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

believes that he could rent it (starting in year 2) and realize a 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

Sale value of property

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Complete this question by entering your answers in the tabs below.

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a

The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year.

He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,920 per month.

However, he 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 be at the end of year 2 in order to earn a 20 percent IRR on equity?

Note: Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.

2

W

Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does no

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#3

$ 536

1,072

13,000

872

7,236

1,836

6,036

8,000

E

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Answer is complete but not entirely correct.

260,108

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