Question
Five years ago, someone used her $40,000 saving to make a down payment for a townhouse in RTP. The house is a three-bedroom townhouse and
Five years ago, someone used her $40,000 saving to make a down payment for a townhouse in RTP. The house is a three-bedroom townhouse and sold for $200,000 when she bought it. After paying down payment, she financed the house by borrowing a 30-year mortgage. Mortgage interest rate is 4.25%. Right after closing, she rent out the house for $1,800 per month. In addition to mortgage payment and rent revenue, she listed the following information so as to figure out investment return:
-
HOA fee is $75 per month and due at end of each year
-
Property tax and insurance together are 3% of house value
-
She has to pay 10% of rent revenue for an agent who manages her renting regularly
-
Her personal income tax rate is 20%. While rent revenue is taxable, the mortgage interest is tax deductible. She has to make the mortgage amortization table to figure out how much interest she paid each year
-
In last five years, the market value of the house has increased by 4.8% per year
-
If she wants to sell the house today, the total transaction cost will be 5% of selling price
Given the above information, please calculate the internal rate of return (IRR) of this investment in house
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started