SOLUTION: two investors purchase a rundown house for 17000$. In the first month that they owned the house, they spent 3000$ on repairs and remodeling. Immediately after the house was remodel
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Question 1000371: two investors purchase a rundown house for 17000$. In the first month that they owned the house, they spent 3000$ on repairs and remodeling. Immediately after the house was remodeled, they were offered 24000$ to sell the house. After some consideration, they decide to keep the house and rent it for 200$ per month starting two months after purchase. They collected rent for 16 months and then sold the house for 22000$. If the interest rate was 1% per month, how much money did they make or lose at the end of the investment period by not selling the house immediately after it was
remodeled?
You can put this solution on YOUR website! since the price of the house and the cost of the repairs is common to both plans, they do not need to be considered because they would just cancel out anyway.
what you are comparing is the future value of 24000 for 16 months versus the future value of 200 dollar monthly payments for 16 months plus tyhe receipt of 22000 at the end of the 16 month period.
24000 invested for 16 months at 1% per month yields 28142 at the end of the 16 month period.
investing 200 each month for 16 months at 1% per month yields 3486 at the end of the 16 month period.
add 22000 to this and he yields a total of 22000 + 3486 = 25486 at the end of the 16 month period.
since he took the rent, then he earned 25486 by the end of the 16 month period.
if he had sold the house instead, he would have earned 28142 by the end of the 16 montyh period.
he has 28142 - 25486 = 2656 less in his pocket by not selling the house right away.
the attached spreadsheet calculations show you the year by year details.
