You are advising an investor on whether to buy a winter ski house in Aspen, Colorado as an investment property. His plan is to buy the house, financing it partly with debt and partly with equity and then sell it in year 15 years right after it is paid off. The big attraction is that the house can be rented with rental proceeds serving as revenue. Consider the assumptions below and critically evaluate the investment.

Cost of house $2,750,000 Down payment 20% 15-year mortgage (4.5% interest rate) for the 80% of the purchase price mortgaged Annual maintenance on the property of $10,000 Annual costs to own (property taxes, insurance, cable, electric, water, etc.) $60,000 escalating 5% every year Mortgage amortized over 15 years (fully paid off after year 15) Depreciation straight-line 15 years Rental income (after fees) of $195,000 escalating at 4% every year Taxes on rental income profit of 35% Ski houses in Aspen increase in value ever year by 2% The roof needs replacement in year 10 at a cost of $100,000 (depreciating 10-year straight line) The investor considers his personal discount rate of 12.5% The house is sold in at the end of year 15 debt free Assume 3 scenarios: -

Base case using the assumptions above -

Optimistic case base rental income is $225,000 per year and escalates by 5% per year, while maintenance costs are $55,000 per year and escalating at 3% per year. The roof does not need to be replaced at all. House values escalate by 3% per year in Aspen

- Pessimistic case base rentals are $125,000 per year and escalates 2% per year. Maintenance cost is $70,000 per year escalating at 5% per year. And the roof needs to be replaced twice, once in year 7 and year 14 at $125,000 each time. House values escalate on 1% per year in Aspen

Evaluate the investment from an investors perspective (returns, IRR, NPV, payback, etc.). Run all your analytics in excel and build a 15-year model and then write a 1-page memo (include it in this document) evaluating the investment and the 3 scenarios. Is this a good investment, why or why not, what are some key sensitivities?

Please help ASAP