Real Estate is more often an interesting alternative to explore when making investment decisions. Now your
group is deciding to purchase an investment property in an ideal location of your preference (which can be
anywhere in US or abroad). The price range is between $400k and $500k. You would address the following
issues:
1) Decide the location and type of property (a single-family house or a condo). Please provide
justification for the decision. e.g., affordability, potential of price inflation. Use data to backup your
choice. Keep in mind you purchase the property for an investment purpose.
2) Find out the mortgage rate you could get (e.g. 30 and 15-year FRM, or 5/1 ARM) and make a
decision among different types of mortgages. Again, provide justifications of your decision. In
addition, figure out the mortgage payment given the down payment you will make (20% of the
purchasing price). Provide information on closing expenses and subsequent maintenance costs as
well.
3) Project the amount of rental you will be collecting when you lease the property out. Use
data/statistics to justify for your estimation.
4) Project the resale value of the property at the end of the investment period (again use statistics to
backup your number and support the time you choose for sale). Then compute the return on your
investment (note for return calculation: your initial investment is your down payment see an illustration
in the second page); compare it with the returns you could get if you invest instead in stock market or
buying long term bonds. Please show your calculation and make sure the procedure is well
presented.
