Learning Objectives: Apply IRR & NPV to evaluate a rental property investment project

Use internet (such as realtor.com, zillow.com) to pick a house or condo that you may be interested in investing as a rental property for 10 years. (suggested price range between $250k - $1 million)

1. (0.5 point) Estimate the annual rent, annual expenses (maintenance, property tax, insurance, etc), depreciation expense (per IRS rule, link below), closing cost, future home selling price (=salvage value). Use reasonable estimates, when forecasting.

2. (0.5 point). Calculate the initial outlay using your answers from Q1.

3. (0.5 point). Calculate the annual operating cash flow for yr 1, 2, ..., 10 using your answers from Q1.

4. (0.5 point). Calculate the terminal cash flow in yr 10 your answers from Q1.

5. (1 point) Calculate the internal rate of return (IRR) using your answers from Q2-Q4.

6. (0.5 point) Estimate the cost of capital (WACC) to finance your investment. Assume 30% of investment is financed by your own equity and the other 70% is financed by a mortgage loan.

7. (1 point) Calculate the net present value of the investment using your answers from Q2-Q4 and Q6.

8. (0.5 point) Discuss whether your rental property is a good investment or not.

This is what I have so far:

34 Column1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 35 Estimated Monthly Rent $ 1,775 $ 1,828 $ 1,883 $ 1,940 $ 1,998 $ 2,058 $ 2,119 $ 2,183 $ 2,249 $ 2,316 36 Months Rented 10 12 9 12 10 12 12 11 12 7 37 38 Expenses 39 Home Purchase (270,000) $ 40 Closing Costs (7,000) 7,000 41 HOA $ (3,600) $ (3,708) $ (3,819) $ (3,934) $ (4,052) $ (4,173) $ (4,299) $ (4,428) $ (4,560) $ (4,697) 42 Insurance (3,156) $ (3,251) $ (3,348) $ (3,449) $ (3,552) $ (3,659) $ (3,768) $ (3,881) $ (3,998) $ (4,118) 3 Property Tax (4,032) $ (4,032) $ (4,032) $ (4,032) $ (4,032) $ (4,032) $ (4,032) $ $ (4,032) $ (4,032) $ (4,032) 44 45 Total Expenses (277,000) $ (10,788) $ (10,991) $ (11,199) $ (11,414) $ (11,636) $ (11,864) $ (12,099) $ (12,341) $ (12,590) $ (5,847) 46 47 Income 48 Rent $ 17,750 $ 21,939 16,948 $ 23,275 $ 19,978 $ 24,693 $ 25,433 $ 26,982 $ 16,212 49 Salvage Value $ S S S S S S 297,000.0 50 51 Total Income $ 17,750 $ 21,939 $ 16,948 $ 23,275 $ 19,978 $ 24,693 $ $ 24,013 $ 26,982 $ 313,212 52 53 TOTAL (277,000) $ 6,962 $ 10,948 $ 5,748 $ 11,861 $ 8,342 $ 12,828 $ 13,334 $ 11,672 $ 14,392 $ 307,365Address: 2021 SW 3rd Ave #703 Miami, FL 33129 https://www.redfin.com/FL/Miami/2021-SW-3rd-Ave-33129/unit-703/home/43368654 Question # 1 Total Property Asking Price $ 270,000 Land Value (%) 20% Depreciable Value S 216,000 Monthly Rent 1,775 Annual Rent 21,300 Annual Increase % 3% Interest rate % 3.67% APR 3.346% Homeowners Association (HOA) 300 Property Tax 336 Insurance 263 Total Monthly Expenses 899 Annual Expenses 10,788 Depreciation Expense 7,855 Closing Cost 7,000 Future Home Selling Price 297,000 Question # 2 Initial Outlay 277,000