Problem 7-4 An investor is considering the acquisition of a “distressed property” which is on Northlake Bank’s REO list. The property is available for $202,000 and the investor estimates that he can borrow $160,000 at 4.5 percent interest on an interest-only loan and that the property will require the following total expenditures during the next year: Inspection$ 530Title search1,060Renovation13,000Landscaping860Loan interest7,200Insurance1,830Property taxes6,030Selling expenses8,000 Required: The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. The investor is now concerned that if the property does not sell, he may have to carry the property for one additional year. The investor believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,800 per month. However, he would have to make an additional $7,200 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order to earn a 20 percent IRR on equity?