Question

In the following, can you work this out via excel In this assignment, you will evaluate whether or not to buy a rental property. You are considering a 10-year investment. Below are the financials: Listing price is $324,000 Monthly rent estimate: $1,850 HOA dues: $295 per month Real Estate Taxes: $2,031 per year Allowance for maintenance and vacancy: One month's rent per year Property Management Cost: 12% of the rent Corporate Income Tax: 21% Depreciation: Straight line 29.5 years to zero (standard for all RE investments) Assume property price, rent, HOA dues, and real estate taxes will all increase by 2% per year. Your required return is 7% Would you buy this property? Now, conduct the analysis without a property management company (you will manage on your own), does your conclusion change?

Answer 1

Using Excel to evaluate a 10-year real estate investment involves calculating yearly cash flow considering all costs, rent, and tax increments, and depreciating the property over 29.5 years. The decision to buy is based on a positive net present value (NPV), discounted at a required 7% return. Removing property management costs can improve cash flow and may alter the investment's attractiveness.

Step-by-step explanation:

When evaluating whether or not to buy a rental property over a 10-year investment period, there are multiple financial variables to consider. Using Excel, you can calculate the cash flow, accounting for the listing price, monthly rent, HOA dues, real estate taxes, maintenance, vacancy, property management costs, and corporate income tax. Depreciation is calculated on a straight-line basis over 29.5 years.

Assuming a 2% annual increase in property price, rent, HOA dues, and real estate taxes, and using a required return of 7%, you can determine the net present value (NPV) of the investment to see if it meets your return criteria. Without a property management company, the 12% cost of rent is eliminated, which could significantly affect your cash flow and overall investment decision.

To conduct this analysis in Excel, you'll set up a model that calculates the yearly cash flow, taking into account all the expenses and revenue increases, and then determine the NPV of these cash flows discounted at the required rate of return. If the NPV is positive and exceeds your required return, the investment would be considered financially viable.