Option 1

Francis Jackson is considering purchasing a residence for personal use:

Acquisition cost $400,000
Down payment 80,000
Mortgage, 30-years, 3.5% interest
Amount of cost assigned to the land 80,000
Annual property taxes 4,000
Anticipated repairs, maintenance, utilities and insurance 6,000
Expected annual appreciation, 5%
Expected holding period, 15 years
a. Calculate Francis’s cash flow and analyze this property as an investment. Submit an Excel spreadsheet showing you r calculations.
b. Write a 300 500 word memo to Francis explaining how this investment compares to renting a similar property for $1,500.