Reference no: EM132139054

Question - Find an Australian house or apartment that you would like to research. From here on this will be referred to as a house or property or home regardless of whether it is a house or apartment.

The house can be anywhere in Australia so long as you can find enough details about the home and the other variables discussed in the below questions.

Question 1 - Question 1a: State the house's full address and copy a small picture of the house.

Question 1b: Estimate the home's value based on an average of no more than 3 similar properties that have sold within the last year or two.

Question 1c: Estimate the gross annual rental revenue from leasing this home if you were the landlord and chose to rent it out to another person.

Question 1d: Estimate the annual rental costs of leasing your home if you were the landlord and chose to rent it out to another person.

Question 1e: Estimate the annual growth rate of rents. Explain your answer and populate the table below.

Question 1f: Assuming that your property lasts forever, use a multi-stage growth model to find the

Question 1g: Find the payback period of your house in years. Take into account the growth rates of net rents found above.

Question 2: Question 2a: Find the best (lowest rate) Australian home loan comparison rate that you can for an interest-only investor loan (not owner-occupier) which has an interest-only period of 5 years and then switches to a fully amortising loan for the next 25 years. So the loan term is 30 years in total.

Question 2b: Find the Net Present Value (NPV) of buying your house if the required return on the house asset was 2 percentage points more than the mortgage loan comparison rate that you found above. So for example, if your mortgage loan comparison rate was 4% pa, your required return on your house asset should be 6% pa (=4% + 2%). Assume that all returns are effective annual rates.

Ignore the fact that the home loan comparison rate is actually an annual rate compounding monthly.

Question 2c: Find the required return on equity, or required return on your wealth in the house (but not accounting RoE) assuming:

A required return on the house asset equal to 2 percentage points more than the home loan comparison rate found above, similarly to the previous question;

A required return on debt equal to the comparison rate that you found above, assuming that the comparison rate is an effective annual rate (so don't bother converting the rate);

An LVR of 80%;

That net rents grow by the growth rates used above.

Question 3: Prepare a loan amortisation schedule by filling in the table below.

The home loan must reflect the details of the loan you referenced in the previous question, so it should be linked to the home loan comparison rate you found earlier.

Include a graph of loan outstandings against time, measured in years, not months.

Your initial loan size (start of month 1 loan outstanding) should equal the estimated house price found in the previous question (1b) multiplied by 80%.

Assume that the home loan comprison rate is an annual rate compounding monthly.

Remember that your home loan is an interest-only investor loan (not owner-occupier) which has an interest-only period of 5 years and then switches to a fully amortising loan for the next 25 years. So the loan term is 30 years in total.

Attachment:- Assignment File.rar