Problem:

The Smith's are a looking to buy a rental investment for $160,000 with future inflation and taxes ignored. They are financing the home in two stages 20% down and financing 80% with a 9% rate on a 20 year mortgage. The Smith's have long term investment stocks that average an 11% annual rate of return. Property taxes are at 1.8% of the assessed value which is calculated at 100% of market value with biannual adjustments. The current assessed value is $103,000 for the building and $41,000 for the land. Insurance is 1% of the building value. Rent has been stable at $550 a month or $500 for long term leases. Renters pay their own electric and gas, Water and sewer are $350, Lawn moving $150, and HOA fees are $700 all per year. Realtor's fees are 6% the buyer will be liable for 1.5% for closing.

Required:

Question 1: What is the amount the buyer and seller are responsible for on the property purchase now or for a later sale?

Question 2: How much occurs now and at the problem's horizon?

Question 3: What horizon should be used?

Question 4: What happens to the property at the problem's horizon?

Note: Show all workings.