Calculator Problem – 04/11/2011

You purchase a rental for $25,000 and put another $15,000 into it for repairs.  You borrow $40,000 at 8% amortized over 15 years.  The house will rent for $1100 a month.  Assume the expense factor is 35% of gross rents.  What is your yield?

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Answer to 03-28-2011 problem:

(N=360, I=4.5, PV=100,000, FV=0) PMT = $506.69
(N=360, I=11, PMT= -$506.69, FV=0) PV = $53,205.17

You will be paying back the loan with cheaper dollars because of the high inflation so the value of that loan today is much lower.