Question: 1 Calculate the price to rent ratios for the following properties arranged

1. Calculate the price-to-rent ratios for the following properties arranged by price of home followed by likely annual rental income:
(a) $400,000/$40,000;
(b) $300,000/$36,000;
(c) $200,000/30,000.
2. Austin Sandler, an electrician and his teacher spouse Emily from Laramie, Wyoming, are interested in the numbers of real estate investments. They have reviewed the figures in Table 16-2 and are impressed with the potential 50.12 percent return after taxes. Austin and Emily are in the 25 percent marginal tax bracket. Answer the following questions to help guide their investment decisions:
(a) Substitute the Sandler’s 25 percent marginal tax bracket (his state has no state income tax) in Table 16-2, and calculate the taxable income and return after taxes.
(b) Why does real estate appear to be a favorable investment for Austin and Emily?
(c) What one factor might be changed in Table to increase their return?
(d) Calculate the after-tax return for Austin and Emily, assuming that they bought the property and financed it with a 7 percent, $175,000 30-year mortgage with annual interest costs of $11,971.
3. Review the math in Table 16-3, on page 489, Discounted Cash Flow to Estimate Price, and give your opinion on which part of the assumptions (price increases or sales price) is more subject to poor thinking.

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