Real Estate Problem Solving
Listing ID S SubType St# St Name City Area SLC L/C Price $/Sqft Br/Ba Sqft YrBuilt LSqft/Ac PrvPool Grg Spcs Date DOM/CDOM 1 OC21265620 A TWNHS/A 309 S Quadrilateral Way ANA 699 STD $750,000 $388.00 3/2,0,2,0 1933/O 2020/OTH N 2 12/15/21 22/22 2 OC21254289 A TWNHS/A 107 Waldorf IR AA STD $899,000 $428.10 3/2,0,1,0 2100/O 2014/BLD N 2 11/23/21 19/19 3 OC22001787 A CONDO/A 164 Capricorn IR PS STD $900,000 $479.74 4/4,0,0,0 1876/A 2015/PUB 1,000/0.023 N 2 01/04/22 3/3 4 CV21259970 A CONDO/A 424 W Central AVE W BREA 86 STD $975,000 $443.18 3/3,0,1,0 2200/P 2020/BLD 0/0 N 2 12/06/21 32/32 5 OC22001250 A CONDO/A 68 Origin IR PS STD $999,880 $472.98 4/3,0,1,0 2114/B 2015/EST N 2 01/04/22 3/3 6 LG21255274 A SFR/D 10951 Lotus DR GG 63 STD $999,900 $390.43 4/3,0,1,0 2561/A 2014/ASR 3,038/0.0697 N 2 11/26/21 42/42 7 EV21258983 A TWNHS/A 281 Novel IR GP STD $1,113,350 $504.92 3/1,1,2,0 2205/B 2021/BLD 1,000/0.023 N 2 12/03/21 15/15 8 EV21258857 A TWNHS/A 325 Novel IR GP STD $1,124,945 $571.91 4/1,2,0,0 1967/B 2022/BLD 1,000/0.023 N 2 12/03/21 15/15 9 WS21262764 A CONDO/A 111 Terrapin IR GP STD $1,150,000 $591.56 3/3,0,1,0 1944/A 2017/ASR 0/0 N 2 12/10/21 28/28 10 TR22000001 A SFR/D 3335 Calle Del Sol BREA 86 STD $1,170,000 $541.17 3/3,0,0,0 2162/A 2017/BLD 2,500/0.0574 N 2 01/01/22 6/6 11 TR22001406 A CONDO/A 185 Frame IR GP STD $1,180,000 $561.90 3/3,0,0,0 2100/E 2018/PUB 2,892/0.0664 N 2 01/05/22 2/2 12 OC21260771 A SFR/D 62 Jarano ST RMV ESEN STD $1,199,000 $606.17 3/2,0,1,0 1978/A 2019/BLD 3,289/0.0755 N 2 12/06/21 28/28 Search Criteria Property Type is 'Residential' Standard Status is 'Active' County Or Parish is 'Orange' Current Price Range is 1200000 or less Bedrooms Total is 2+ Bathrooms Total Integer is 2+ Living Area is 1800+ Year Built is 2014+ Selected 12 of 13 results. MLS.2022.01.08.agnet.1.line MLS.2022.01.08.agnet.full FIN335.SPRING 2022 REAL ESTATE FINANCE.PROBLEM SET 2 1 | P a g e You have owned primary residence for a number of years, now you and your spouse are searching for a rental property to invest in Orange County, including City of Irvine. You are looking for three bedroom and two bath condominium or townhouse, more than 1,800 square feet, two car garages, built after year 2014, in a nice location, close to restaurants, grocery shopping, and easy access to freeway. You and your spouse both works, and combined salary is $240,000 per year. Your credit score is 760, and your spouse credit score is 780. Your current mortgage is $2,600 per month, property tax is $12,000 per year, Homeowner association due is $250 per month, home insurance is $1,200 per year. You have saved up $350,000 in saving account. You plan to use up to $250,000 for down payment and finance the purchase of investment property. You plan to rent this property for at least 7 years then sell it. Jeffrey Lu of Coldwell Banker has searched and offered you and your spouse a list of home to choose from (on blackboard – content – “ MLS-2022.01.08.1line and full report. Price less than 1.2 Mil “ You will find out the rental value per month, i.e. market rent per month, for the target investment property. The rental income estimates will be provided to the FIN335.SPRING 2022 REAL ESTATE FINANCE.PROBLEM SET 2 2 | P a g e lender, and the certified appraisal for lender will include rental income schedule for the target investment property. You and/or your spouse need to get a pre-approve letter from bank. Please answer the following questions. 1. Calculate both front end and back-end ratio for you and your spouse. 2. Identify the address of the target investment/rental property. What is the gross rent per month and net rental income per month from this rental property? 3. What is the loan amount you can finance to buy this investment property? What is the terms, rate and monthly payment of this loan? Assume the net rental income from the target rental property is eligible as income for loan application for investment property. 4. You plan to sell this rental property at end of seventh year ownership, assuming 6% of increase in value annually. What is expected sales price? 5. Assuming selling cost, including broker commission, pre-sale repair expense, and closing cost, is about 6% of the selling price. What is the net realized proceeds from the sale? What is the net gain from sale of this rental property? FIN335.SPRING 2022 REAL ESTATE FINANCE.PROBLEM SET 2 3 | P a g e 6. The tax on gain of such sales, assuming combined tax rate of 28%. (a) how much tax would you pay? (b) Is there any alternative to defer the tax liability and roll over the gain to other investment & describe ways to do that? (c) This tax deferral is based on what Internal Revenue Tax code. 7. What is the effective rate of return on the cash flow from this rental property, including annual cash flow and net sales proceeds, assuming there is no tax liability upon sale in 7 years? 8. How can you permanently defer the tax liability from the real estate investment? Show your calculation to support each of your answer when applicable. Submit your answer onto the black board before the due date.