We will use a discounted cash flow model and a financial proforma to evaluate expected cash flows and investment returns for 18512 Spicer Lake Ct, Reno, NV. We will imagine it is July 2014, and we want to decide if we will get a greater return investing in the Spicer single-family home or a portfolio of stocks. We start with the following assumptions to create our baseline return for the single-family house.

Assumptions: Purchase Price= $265,000 Monthly rent= $2,800 Rent growth rate= 3% Vacancy rate= 10% (of PGI) Opex= 30% (of EGI) Capex= 5% (of EGI) Buying costs= 2% Selling costs= 3% Capital gains tax rate= 20% Depreciation recapture tax rate= 25% Your ordinary income tax rate= 24% LTV ratio= 80% Annual interest on loan= 5% Holding period= 8 years Annual miscellaneous income= $0 MI growth rate= 0% Length of loan= 30 years Depreciation of residential property= 27.5 years Percent of purchase that is land= 10% Projected sales price= $554,000

Suppose you secured an interest only loan instead of a 30-year fixed rate fully amortizing loan. (You will need to adjust the debt service, interest expense, and remaining mortgage balance in your proforma) You secured a 10-year interest only loan, with an 80% LTV, and a 5% annual interest rate. What is your new ATIRR? (After you answer the question correctly switch assumptions to the baseline assumptions)