You are a professional real estate investor, and you are considering the acquisition of a distressed property which is on Covina Banks REO list. The property is available for purchase for $500,000 and you believe that you can take a $400,000 interest-only loanat 9 percent interest requiring monthly payments. You also estimate that the property will require $20,000 total for maintenance, landscaping, and renovations during the next year, spread out evenly over the months. Future selling expenses for the property are estimated to equal $10,000. Title search and inspection would cost a total of 1,000 upon the purchase.

Case 1:

If you plan to sell the property 1 year from today, and if you require an 18% annual return (in nominal not effective terms), how much would you need to sell it for?

Case 2:

What will be the required selling price if you sell the house not 1 year, but 2 years from today? Assume you will need to keep paying for the loan, maintenance, landscaping, and renovations expenses throughout the additional year.

Case 3:

What will be the required selling price if you sell the house not 1 year, but 2 years from today? This time, unlike Case 2, assume you will need to just keep paying for the loan throughout the additional year.