An investor is considering the acquisition of a "distressed property" which is on Northlake

Bank's REO list. The property is available for $$200,000$ and the investor estimates that he can

borrow $$160,000$ at $4\mathrm{.}5$ percent interest and that the property will require the following total

expenditures during the next year:

a$.$ The investor is wondering what such a property must sell for after one year in order to earn

a $20$ percent return $(IRR)$ on equity. What other issues must he consider?

b$.$ The lender is now concerned that if the property does not sell, the investor may have to carry

the property for one additional year. He believes that he could rent it $($starting in year $2)$

and realize a net cash flow before debt service of $$1,200$ per month. However, he would

have to make an additional $$7,200$ in interest payments on his loan during that time, and then

sell. What would the price have to be at the end of year $2$ in order to earn a $20$ percent IRR

on equity?