Question
Steven is looking to purchase an investment property, and is interested in a particular apartment on London Street. This apartment costs $500,000. Steven has also
Steven is looking to purchase an investment property, and is interested in a particular apartment on London Street. This apartment costs $500,000. Steven has also estimated that the other upfront costs for purchasing the apartment will total $5,000. Steven has also spoken to his real estate agent Ray and his banker Jane, and gathered the following additional information:
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Strata for the apartment is estimated at $700 per quarter in arrears.
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Council rates are estimated at $500 per year payable in arrears.
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Steven can expect to receive $1,600 per month in rent, paid in advance. The apartment is currently tenanted, so he expects to receive the first rent payment immediately after he purchases the apartment.
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The bank will only lend a maximum of 80% of the apartments price.
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The bank is willing to lend to Steven at an interest rate of 3.5% p.a. compounding daily. The banking industry standard is to always assume there are 365 days in a year.
Currently, Steven is considering the value of this investment over the next 10 years.
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Calculate the present value of the strata payments over the coming 10 years.
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Calculate the present value of the council rates over the coming 10 year.
NOTE - please show working out using time value of money formulas on paper not on excel
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