Question

Nabil is considering buying a house while he is at university. The house costs $200,000 today. Renting out part of the house and living in the rest over his five years at school will bring him a net income of, after expenses, $650 per month. He estimates that he will sell the house after five years for $210,000. If Nabil’s MARR is 6 percent compounded monthly, should he buy the house? Use annual worth.

Answer 1

Interest rate per month (i) = 6%/ 12 = 0.5%

n = 12 * 5 years = 60

Annual Worth = -200,000(A/P, 0.5%, 60) + 650 + 210,000(A/F, 0.5%, 60)

                      = -200,000(0.0193) + 650 + 210,000(0.0143)

                      = - 3,860 + 650 + 3,003

                      = -$207

Since annual worth is negative, therefore, he should not buy the house.