7'8 Real Estate

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7.8 Real Estate
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Net Income from Real Estate (rent out homes you
own)

• Gross income rent you receive
• Net income gross less expenses (taxes, repairs,
  insurance, mortgage interest, depreciation)

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Example 1

• Chieko Beppu bought a house lot for 150,000.
  She made a 30,000 cash down payment got a
  120,000 mortgage for the balance. She rented
  the house to a tenant for 1500 a month. Her
  annual payments for taxes, repairs, insurance,
  interest, depreciation, other expenses totaled
  14,100. What annual net income did she earn?

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Rate of Return on Real Estate

• Rate of return yield (rate of income)
• Rate of return annual net income cash
  investment
• Example 2
• Find the rate of return for Chieko Beppus house
  in Example 1

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• Capital investment amt of cash originally
  invested plus spent for improvements (adding a
  garage)
• Expenses repair jobs (dont increase value of
  house) (ex painting house, fix sidewalk, fix
  leaks)
• Example 3
• Suppose that on buying the rental house, Chieko
  spent an addl 2700 in cash to add a deck to her
  rental house. What would the rate of return on
  her real estate investment be?

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Finding What Monthly Rent to Charge

• Annual rental income annual net income annual
  expenses
• Monthly rent annual rental income / 12
• Example 4
• Ezra wants to earn 15 annual net income on his
  10,000 cash investment in property. His annual
  expenses of owning the property are 2700. What
  monthly rent must Ezra charge?

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Wrap It Up