You have a $1000 to invest with a 10-year horizon and are comparing investing in a 10-year bond (that has equal risk to the real estate considerations), and unlevered and levered real estate. The bond pays 8% annual coupon. Your buildings provide an NOI of $80 and you expect to buy and sell your buildings for $1000, with no acquisition or selling expense. You are in a 43.4% marginal tax bracket, with a 28.8% depreciation recapture rate and a 23.8% capital gains tax rate. You can take a 30-year straight line depreciation on the buildings (valued at $800 each) and not depreciate the $200 land value. You can get bullet loans for 75% LTV at 5% for 10 years. No PALL's are allowed. Complete the following table of cash flows that will provide the IRR noted. Summarize you computations in appended table. Answer the noted questions after completing you computations.

Real Estate Compared to Boeds-Simplified Examples You have a $1000 so iavest with a 10-year horison and are coctsparing investing in a 10 -year hond (that has equal risk to the real estate considerations), and unleverod and levered real estate. The bond pays buildings for $1000, with no acquisitioe of selling expense. You are in a 43.4% marginal tax bracket. with a 28.8% depreciation reciptere rate and a 23.8% copital gains tas rate. Yea can take a 30 -year straight line depreciaticn on the buildings (valued at $00 each) and not depreciate the $200 land value. You ean get bellet loans for 75n' LTV af 5N for 10 yean. No PAL. 's are allowed. Complete the following table of cash flows that will peovide the IRR soted. Summarive you computations is appended table. Answer the noted questions affer coenpleting you computations. What is the Effoctive Tax Rate for each of those investmens? (Sbour computations for each) For this example, what makes the unlevered CRE imvestment faverable from a tax point of view compared to bonds? How does the leveraged RE funther lower the efloctive tas nate? Using the intuition developed from above answer the following. If rather than a bullet loan, the bank offercd only a fully amoutiping 10 ycar loan, alse at 5%, would the ATIRR be higher or lower? Why? Use this table for completing computations for the real estate investment