An employee of a company is about to retire and has to decide between various alternatives for investing the savings. The retiree will like a lifetime annual income of $100,000 before taxes. One of the options is to invest in a commercial building which will yield an estimated annual rent of $100,000 after all expenses. The market risk of commercial real estate is same as the market risk of TSX 500. The market premium of TSX 500 is 6% and the risk-free rate is 2%. How much should the retiree pay at the limit for the commercial real estate?

What could be the risk factors of investing all retirement savings in real estate? Explain. (L1)