A former Professor recently asked for advice onpurchasing a property in Massachusetts. He was looking at a property similar to 80 Captains Row, Bourne, MA 02532.

1. Notice that the "zestimate" - Zillow's best estimate of the house price -jumps in July2018. Can you figure out why Zillow's formula to estimate prices would predict such alarge increase? Do you think the variable that accounts for this increase should be in their formula to estimate the price?
2. Suppose that John put 20% down and paid $1.3m on the property. Using the mortgage rates you computed, estimate the monthly payment for a 30-year fixed rate mortgage on the property.
3. Suppose that John has the money to pay for the property in cash, or get a mortgage. Factoring in the interest deduction (at a 37% tax bracket); how much will John have paid in total for the mortgage after 30 years?
4. If John could instead reinvest the cash somewhere else-what rate of return would John need on the alternate investment for it to make sense to get the mortgage instead of paying fully in cash?
5. Suppose the property has a $14k/year flood insurance requirement if the property has a mortgage. How does your answer to d change?
6. Should John get the mortgage?

Answer rating: 100% (QA)

The reason for the large increase in Zillows zestimate for the property in July 2018 cannot be determined without additional information Zillows estimate algorithm takes into account various factors s... View the full answer