You are looking to purchase a house to rent out as an investment property. The price of the house is $1,200,000 (consisting of $1,050,000 in land value, and $150,000 in building value). You can finance 75% of this ($900,000) via a bank mortgage at a rate of 3.5% compounded annually (for simplicities sake, calculate all mortgage payments on an annual basis). You will incur closing costs (land transfer tax, legal fees, etc) of $28,000. Additionally, you would like to spend $75,000 to renovate the house before renting it out. The down payment for the house as well as all the additional fees and renovations will come from your personal savings, which you would otherwise invest in some other manner. Your personal marginal income tax rate is 38%. Determine a suitable MARR for this investment 12 of 20]. Based on this MARR, determine the after tax NPV (using net cashflows including the effects of inflation. Assume you will purchase and amortize the house over 25 years, at which point you will sell it to fund your retirement in the Bahamas [12 of 201 Other relevant data Building CCA Class 3 (4%) Maximum allowable rent increase in BC (this year 3.7% Mortgage term: 5 years General Inflation Rate (last five years): 1.8% Housing Specific Inflation Rate last five years): 15% Expected annual rent in year 1: $35,000 Expected annual expenses in year 1:$17,000 (property tax, maintenance tenant related expenses) You are looking to purchase a house to rent out as an investment property. The price of the house is $1,200,000 (consisting of $1,050,000 in land value, and $150,000 in building value). You can finance 75% of this ($900,000) via a bank mortgage at a rate of 3.5% compounded annually (for simplicities sake, calculate all mortgage payments on an annual basis). You will incur closing costs (land transfer tax, legal fees, etc) of $28,000. Additionally, you would like to spend $75,000 to renovate the house before renting it out. The down payment for the house as well as all the additional fees and renovations will come from your personal savings, which you would otherwise invest in some other manner. Your personal marginal income tax rate is 38%. Determine a suitable MARR for this investment 12 of 20]. Based on this MARR, determine the after tax NPV (using net cashflows including the effects of inflation. Assume you will purchase and amortize the house over 25 years, at which point you will sell it to fund your retirement in the Bahamas [12 of 201 Other relevant data Building CCA Class 3 (4%) Maximum allowable rent increase in BC (this year 3.7% Mortgage term: 5 years General Inflation Rate (last five years): 1.8% Housing Specific Inflation Rate last five years): 15% Expected annual rent in year 1: $35,000 Expected annual expenses in year 1:$17,000 (property tax, maintenance tenant related expenses)
