Question

You own a house that you rent for $1,675 per month. The maintenance expenses on the house average $315 per month. The house cost $242,000 when you purchased it 4 years ago. A recent appraisal on the house valued it at $264,000. If you sell the house you will incur $21,120 in real estate fees. The annual property taxes are $3,650. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office?

Answer 1

Answer:

$242,880

Explanation:

Value of House = Appraisal value - Expenses

Appraisal value $264,000

Expenses $21,120

Hence,

$264,000-$21,120

=$242,880

Therefore the value that should you place on this house when analyzing the option of using it as a professional office will be $242,880

Answer 2

Answer:

The value that should be placed when analyzing the option of using the house as a professional office is $242,880

Explanation:

In calculating cash flow of a project, opportunity cost is very important hence be made part of the cash flow

Incremental cash flow = Appraisal on the house - Real estate fees

=$264,000 - $21,120

= $242,880