Question # 3

You are to estimate the value of a proposed 4 bedroom/3 bath (2700 SF) real estate property to be built in start of 2018, and the following information was gathered about similar property within the neighborhood:

• Land 1 sold in the beginning of 2016 for 57 CAD/SF
• Land 2 sold in the beginning of 2015 for 52 CAD/SF
• The prices of the lands are to be adjusted for unfavorable financing by 2% reduction per year
• Cost of improvements for similar specification of house was averaged at 600,000 CAD
• Comparable rents within the neighborhood was 4,000 CAD per month
• Estimates of other incomes from the property is 2,500 CAD for the year
• Vacancy and collection loss rates was investigated as 7% and Cap rate of 4%
• Assume that you would spend roughly 650 CAD/month for operating the property.

The price per bedroom of 215,000 CAD, and a price per square foot of 300 CAD

Question # 4

You are trying to make a decision whether to purchase a property that will not generate any cash flows but will be sold at 1,500,000 CAD after 4 years from today. An alternative investment would yield 3% per year return on your money. Answer the following questions:

1. What is the largest amount of money you should be willing to put into the investment?
2. If the property will be generating a yearly income of 50,000 CAD, what is the return rate after the sale in 4 years.