Randall and Julia Clarke are considering buying a $200,000 condominium by paying all cash (Randall has just received some money from his grandfather's estate). Although there are no mortgage payments, there are other home ownership costs: - property taxes of $3,000 per year, condominium fee of $500 per month, and home insurance premium of $600 per year. It is expected that the price of the condominium will increase at 2.5% per year. Alternatively, they can rent the condominium at $1,500 per month. If they rent, they will buy a tenant insurance policy to cover only the content of the condo, and that will cost $300 per year. Their marginal tax rates are the same, 35%. 

Required: What is the expected after-tax rate of return on the condominium?

Answer rating: 100% (QA)

To calculate the expected aftertax rate of return on the condominium we need to consider the cash fl... View the full answer