Question

You have the option of purchasing a house for $250,000. You will rent this property out for a total of $2,000 per month. You estimate that operations and maintenance will cost $12,000 per year. In 20 years you plan to retire to another country and sell the property for $310,000. By what percentage could you decrease the monthly rent before the initial investment is no longer worth it? Assume a MARR of 0.25% per month

Answer 1

The rent should be reduced to a level so that the present worth of the investment is zero. Monthly rate is 0.25% per month and total time is 20*12 = 240 months. Yearly rate is (1 + 0.25%)^12 - 1 = Let the rent be X

PW = 0

-250000 + 310000(P/F, 0.25%, 240) + X(P/A, 0.25%, 240) - 12000(P/A, 3.0146%, 20) = 0

-250000 + 310000*0.5492227 + X*180.310914 - 12000*14.820421 = 0

X = 257586/180.310914 = 1428.57

The rent can be reduced to 1428.57. Hence the percentage change is (2000 - 1428.57)*100/2000 = 28.57%