You are considering the purchase of the house located at 6500, Ellenwood Avenue,

Question

You are considering the purchase of the house located at 6500, Ellenwood Avenue, St. Louis, MO 63105. The house has about 6, 460 sq, feet of heated and cooled living area, and the current owners are asking a price of $1.5 million for it. Use the information provided in the following table to determine an initial estimate of the value of the house. What additional information would help you estimate the reasonableness of the sale price? Zillow, (a real estate website www.zillow.com) estimates the rent on the property to be $10000/month. Using this and a projected maintenance expense of $150 per month and a marginal tax rate of 25%, what is the value of the house as a pure investment property if your discount rate is 10%.

Explanation / Answer

To calculate an initial estimate we may take the average per sq ft rate of the 3 properties i.e, @213.84*6460= $1,381,406.40. So the property seems over priced.

Rate per sq ft is bit higher than the two properties however lower than the other one. However what needs to be considered is , that the date sold are for 2012 rates and this sale is expected to be in 2016.during these 4 years how the general property market has moved .

Additional information what requied is the property value trend over these 4 years

Net incone per annum from rent :

Value of the house as investment property depends how many years the house is put up on rent .

Com 1 Com 2 Com 3 Sale Price    1,300,000.00    1,090,000.00    1,705,000.00 Sq ft 6247 5535 7210 Rate per sq feet                208.10                196.93                236.48 Value of house to be purchased    1,500,000.00 Sq ft 6460 Rate per sq feet                232.20

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