Finish problems in the word document.Chapter 9 problems:
1. Jack purchases a house for $90,000 and spends $15,000 to renovate it. He holds the house for
35 years and then sells it in middle of a real estate bubble for $400,000. On how much of that
amount does he have to pay taxes?
2. Mary purchased a home for $200,000. By living in the home, she saved $18,000 annually
because she did not have to pay rent. She had to pay $3000 annually for upkeep of the home. By
the end of the first year, the home price had appreciated to $210,000. What was her return for the
first year (considering assumed rents)?
3. Josh earns $80,000 a year. He would like to purchase a home and applies for a mortgage from
the bank. The bank requires that the debt not exceed 28 percent of his annual income. With the
current down payment he is willing to pay, his monthly mortgage payment will be $1,600. In
addition, he will have to pay $4,000 annually for tax and insurance. Will the bank approve his
loan?
4. Harry decides to purchase an apartment building as an investment. He pays $6,000,000 for the
building. The building has a net income of $150,000, annual depreciation $150,000, annual taxes
of $75,000, and annual interest payments of $105,000.
a. Calculate the building’s cap rate.
b. One year later, the price of the building goes up to $7,000,000. Calculate the new cap rate.
5. Why is the home often a better investment than renting? Under what circumstances would renting be preferred?Second Editin
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