Real Estate Case

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School

University of Mississippi *

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Course

351

Subject

Finance

Date

Apr 3, 2024

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xlsx

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29

Uploaded by PresidentIron13523

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FIN 351: Principles of Real Estate Fall Semester 2023 Case Stu 2023 at 11:59 PM Central Early Submission Bonus: Thursday, Central (10-point overall grade bonus) Please submit everythi submissions will be accepted. You can work as an individual o also permissible to address this assignment as an individual. O group/individual. There are no partial credits for late submiss will receive 0 points for the case study. The case study represe strongly recommend that you plan accordingly. DO NOT wait submit your work. A Discussion Board has been set up in Blac Submissions, post the names of all members in alphabetical o documents submitted. (example: Baker_Jones_Smith) For ind your last name and first letter of your given name on each of (example: HilterbrandC) Documents can be submitted as Exce submit the document as an Apple or Google based platform e file with calculations and a complementary Word document w (double space) (tables and graphs are not included in this lim sheets for each question. The Excel submission does not coun Remember, the point of the Excel is to put together calculatio questions within the Excel document, but make sure that all q clearly addressed. You may also do this entirely in Word with with the narrative written description contained in the docum case study, please feel free to convert other formats to a .pdf works was not performed in Excel or Word. Description of the to move to Oxford, MS to start her new job at a real estate fir whether she wants to rent or buy a property in Oxford. Emma asking your team to help her make this financial decision. Her This budget must cover housing expenses including rent or ow hazard insurance, property taxes, and Home Owner Associatio analysis is to apply financial concepts such as the “time value three years and is renewable for three more. Her plan is to sta than 8 years. Even if her job continues to work out well, she w she selects to a different house. Emma has money saved for t 20% down payment on any house that she purchases. Emma based on financial motives. She is not worried about argumen your money when renting” or “it is better to be flexible and re
udy Due Thursday, November 16, November 9, 2023 at 11:59 PM ing in Blackboard. No paper or in teams of up to 3 members. It is Only one submission per sions; if you submit late your team ents 18% of the final grade, so I until the final day to prepare and ckboard for submission. For Group order by surname on each of the dividuals, post all submissions with the documents submitted. el, Word, or PDF format. Do not extension. You may submit an Excel which should not exceed 6 pages mit). Your Excel submission can have nt against the page limit. ons. You are permitted to answer questions on this case study are the calculations placed in tables ment. As .pdf is a way to submit this for submission, particularly if your e Problem: Emma Jones is planning rm. She has not yet decided a is not from Mississippi and is r monthly housing budget is $2,400. wner’s costs (example: mortgage, on fees, if any). A good start of the e of money.” Emma’s contract is for ay in the Oxford area for no more will try to move from the location this transaction and plans to make a will make this decision purely nts such as “you are throwing away ent rather than buy.
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Monthly Annual Emma's Budget $2,400.00 $28,800.00 Property Taxes 0.011 $310.04 $ 3,720.50 Insurance 0.006 $169.11 $ 2,029.37 Maintenance $75.00 $900.00 Monthly Mortgage Payment $1,845.85 Balance $0.00 -$0.02 Purchase Price $ 338,227.50 Mortgage Principal $270,582.00 Question 1 Estimate the maximum house value Emma can a terms that Emma has is based on a fixed-rate, 30-year matu interest rate that she was quoted is 7.25% with monthly pa city of Oxford is 1.1% per year based on property value; ass per year based on property value and assume $75 per mon monthly mortgage payment and the maximum house value (10 points)
Monthly Years Term of Mortgage (N) 360 30 Interest Rate (I/Y) 0.0060416667 7.25% Payment (PMT) $1,845.85 Future Value (FV) 0 0 Mortgage Amount (PV) $270,582.00 afford to buy. Assume the mortgage that urity, 80% LTV, with no points. The mortgage ayments. Assume that property tax rate in the sume the hazard insurance premium is 0.6% nth for maintenance. Determine the required e she can afford if she buys.
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Maximum House Value $338,227.50 Required Monthly Mortgage Payment $1,845.85
Question 2. Select the properties for comparison. After deter budget in Question 1, select a house that Emma can afford a Instructions for property selection: • Use the maximum purc question to select a house for purchase and use the Emma’s rental payments per month. • Go to an online site that offers are Zillow.com, Trulia.com, Redfin.com or Realtor.com. • Sele townhouse, or house) that is for sale. Please provide the link property selected. Also state within your document the purc may use the taxes, insurance, and HOA fees included in the i use the mortgage information that is provided in this case st decision. • Find a rental property near the property that is fo property must stay within the budget. Where possible, selec footage, lot size, type of property, number of bedrooms and and images (2 pictures maximum per house) for the compara document the monthly rental payment of the property. (5 po
rmining the maximum house value for Emma’s and follow the instruction for the case. chase amount established in the first part of this monthly budget as a maximum amount for s real estate for sale and rent. Examples of these ect one property (it could be a condominium, k and images (2 pictures maximum) for the chase price of the house. • Special Note: You information on Zillow, Trulia, etc., but you must tudy to calculate the costs associated with this or sale that you/your team selected. This rental ct a comparable property based on square number of bathrooms.) Please provide the links able property selected. Also state within your oints)
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Question 3. Calculate the opportunity costs. Based on the h in Question 2, determine the opportunity costs, of using req down payment plus all closing costs), rather than investing t effective rate of 5.75% yearly. The down payment amount w of the house you selected. For estimation purposes, closing Calculate the amount opportunity cost (the foregone interes rather than making an investment a. Two years b. Three years c. Six years d. Eight years (10 points)
house you selected for purchase quired funds for closing (i.e., the funds and earning an will be 20% of the purchase price costs will be $3,750.00. st) due to purchasing the house
Question 4. Determine the difference in monthly payments r the monthly rental payment. For the monthly purchase paym on a fixedrate, 30-year maturity, 80% LTV, with no points. Th quoted is 7.25 % with monthly payments. Assume that prope is 1.1 % per year based on property value; assume the hazar year based on property value and assume $75 per month for your selected property includes condo fees or HOA fees that number in place of the $75 per month maintenance allowan amount found in Question 2 for the rental payment. 1. Calculate the monthly payments required for purchase an Then find the monthly difference in these two payments. 2. After finding the monthly difference, calculate the cumula of the payments for both purchasing and renting and provide the following periods: a. Two years b. Three years c. Six years d. Eight years (10 points)
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required to buy the house versus ments, the calculations are based he interest rate that she was erty tax rate in the city of Oxford rd insurance premium is 0.6% per r maintenance (Special note, if t are provided, you may use that nce). Use the rental payment nd for renting. ative (not compounded) amount e the difference in payments for
Question 5. Determine the principal outstanding and interes mortgage. 1. Calculate the outstanding mortgage balance aft below: a. Two years b. Three years c. Six years d. Eight years And 2. Calculate the total amount of interest paid after the p e. Two years f. Three years g. Six years h. Eight years (10 points)
st paid on the Emma’s fter the periods listed periods listed below:
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6. Determine the future value gain or loss of the purchased p different price scenarios of property price appreciation (or de scenario of property appreciation that you consider appropri explanation for why you selected these scenarios). For examp properties increase by 2% per year. To keep the returns realis rates used between high of a positive eight percent (8%) a low 3%) annual increase (or decrease). Show both the projected p gain (or loss) after the following periods: a. Two years b. Three years c. Six years d. Eight years (10 points)
property. Calculate Three (3) epreciation). You can select any iate (you need to provide an ple: one potential scenario is that stic, there will be a cap on these w of a negative three percent (- property value and the amount of
7. Calculate the mortgage interest tax deduction. While not e interest deduction, for the purpose of this exercise, assume t for people who use mortgage financing. The tax advantage is program. This means that Emma can potentially subtract pai taxable income. Given Emma’s salary, her effective income ta Calculate the mortgage interest paid and the tax savings afte a. Two years b. Three years c. Six years d. Eight years (5 points)
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everyone can use a mortgage that there may be a tax advantage s a mortgage interest deduction id mortgage interest from her ax savings would be based on 25%. er the following periods:
8. Calculate the costs at resale. Assume that when Emma sel estate broker fee of 6% and closing costs of $3,750. Use the question 6 scenarios to calculate the real estate broker costs closing costs after the following periods (Note: There should a. Two years b. Three years c. Six years d. Eight years (5 points)
lls her house, she will incur a real projected property values from the s incurred for the resale and add the d be three answers for each):
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9. Calculate the net proceeds from resale. Continuing with th Question 6. • Use the projected future property values from Subtract the outstanding mortgage balances found in Questi resale found in Question 8. Calculate the net proceeds for th be three sets of answers for each time period) a. Two years b. Three years c. Six years d. Eight years (5 points)
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he three scenarios that you selected for m the three scenarios is Question 6 • tion 5. • Subtract the amount of costs at he following periods: (Note: There should
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10. Calculate overall purchase gain or loss. Use the answers f the overall purchase net gain or loss considering (adding or s items in the following order: 1. The original down payment a opportunity costs 3. The difference in payments between pur mortgage interest deduction Note: Make sure to provide a su Calculate the overall purchase gain or loss for the following p each calculation before moving to the next item. Note: There for each: a. Two years b. Three years c. Six years d. Eight years (10 points)
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found in Question 9. Calculate subtracting) all of the following and closing costs 2. The rchase and rent 4. The potential ubtotal after each calculation. periods Show subtotals after e should be three sets answers
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Question 11. Provide your recommendation. What decision w Jones to make? To buy or rent? This answer must include fact in your prior ten answers. This answer should include an anal This should be a full analysis of the overall case study. (20 poi
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would you recommend Emma ts and figures that you presented lysis at different time increments. ints)
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