You are thinking about buying a fixer upper to convert into an office building f

Question

You are thinking about buying a fixer upper to convert into an office building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data? Information about the house: Remodeling cost at period 0 = $20, 000 Annual rent income = $25,000 Annual upkeep costs = $5,000 Estimate net property value (after taxes) at the end of 10 years = $225,000 Interest rate = 8% per year 201, 205 250,100 232,316 218,420

Explanation / Answer

Pay =-20000+(25000-5000)/1.08^1+(25000-5000)/1.08^2+(25000-5000)/1.08^3+(25000-5000)/1.08^4+(25000-5000)/1.08^5+(25000-5000)/1.08^6+(25000-5000)/1.08^7+(25000-5000)/1.08^8+(25000-5000)/1.08^9+(25000-5000)/1.08^10+(225000)/1.08^10

=218420 is the answer

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