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?

Question

Business

Ryan Maddox

15 January, 15:04

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?

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Answers (1)

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Amaya Novak · Answer 1

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