You are considering the option of buying or renting a single residential property. You can rent for $4,000 per month and the owner will be responsible for maintenance, property insurance and property taxes.

Alternatively, you can buy this property for $300,000 and finance it with a 25-year fixed 80% mortgage at 7% interest. The loan can be prepaid at any time without penalty.

You've researched the market and found that properties have historically increased in value at an annual rate of 4%. Rents for similar properties also increased at the same rate. Care and insurance is currently $2,500 per year and is increasing at a rate of 4% per year. Property taxes were generally around 3% of property value each year.

If you buy, the plan is to use the property for at least four years. Sales costs will be 7% in the sales year.

You should decide based on this information:

• To achieve an internal rate of return of 10%, should you buy the property or lease it for a four-year ownership period?

Answer rating: 100% (QA)

To determine whether buying or leasing the property would be more favorable in terms of achieving an internal rate of return IRR of 10 over a fouryear ... View the full answer