real estate finance

Provide a recommendation of which of the following properties would be the better choice out of each set of properties. Be sure to provide the calculations you used in your analysis and use the calculations to support your conclusions. You must submit both an Excel file with dynamic calculations and a Word document with the written answers and the explanation. Use a separate worksheet for each property pairing and label each worksheet. All the analysis must be done in the same workbook.

1) Property A or B

Both properties have existing loans that you are able to assume. You should consider which property has the best financing terms and whether you should assume the loan or simply get a new loan.

Both properties have a purchase price of $350,000 and a loan to value ratio of 75%. A second mortgage on either property would be needed to make up the difference in the amount financed and could be obtained at a rate of 8% for a 15‐year term. A new loan on the either property would have a term of 15‐years and would be at a rate of 6.75%.

Property A

The original loan amount was $200,000 at a rate of 5%. The loan was obtained 10 years ago for a term of 25 years. Therefore, it has 15 years left on the loan.

Property B

The original loan amount was $250,000 at a rate of 5.25%. The loan was obtained 10 years ago for a term of 25 years. Therefore, it has 15 years left on the loan.

2) Property C or D

You have the option of buying one of two properties. The market rate is 4.5% on 30‐year loans with 80% loan to value ratio.

Property C

You can purchase this property for $475,000 and get the seller to finance it at 3.75% for 30 years.

Property D

This property has a purchase price of $445,000, but there is no special financing available from the seller of this property.

3) Property E or F

You have the option of buying one of two properties. Determine the IRR for each property and which property you will select if the reinvestment rate is 7%.

Property E

Initial Investment   $     (1,750,000) 

Year 

1   $           124,568  

2   $           274,488  

3   $           256,793  

4   $           328,920  

5   $           358,392  

Sale of Property   $        3,560,468  

Property F

Initial Investment   $     (1,550,000) 

Year 

1   $           234,567  

2   $           345,789  

3   $           275,356  

4   $           354,682  

5   $           258,324  

Sale of Property   $        2,575,668  

4) Property G or H

What is the value of each property and which one would you purchase based upon the assumptions given? Both have a required rate of return (yield) of 6%. What if the required rate of return was 8%?

Property G

Year 

1   $         60,000  

2   $         85,000  

3   $         75,000  

4   $         74,000  

5   $         73,000  

Sale of Property   $   1,250,000  

Property H

Year 

1   $            20,000  

2   $            35,000  

3   $            40,000  

4   $            35,000  

5   $            20,000  

Sale of Property   $      1,500,000