Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.Nevertheless,Billy will need to borrow $240,000 at an interest rate of 7% per year in case he decides to make this investment.Should Billy purchase this house?

Question

Quizplus · Accepted Answer

The annual interest on the loan is $240,000 * 7% = $16,800, which is higher than the net income from the property ($15,000 revenue - $3,000 expenses = $12,000 net income). Therefore, Billy will lose money.

Billy Is Considering the Purchase of a Rental House