Doug decided to purchase the run-down one-bedroom home next door to clean up the neighbourhood and, hopefully, make a profit. He guesses that with $10,000 in improvements and repairs over the next 12 months including selling time, he can sell the property for $180,000. Realtor fees will be 6%. He has the cash up front to make the purchase. In order for this to be worth his time, he wants to make 20% on his investment.
a. What price should he offer to pay for the house?
b. As he starts into repairs, he discovers rotting floorboards throughout the first floor, running up his repair cost an additional $2,000. What will be his new asking price for the house?
c. He made the repairs in the floorboard so total improvement and repair cost was $12,000. Come time to sell the house, he received an offer for $175,000. If he had purchased the house for $130,000 cash and did not have any other expenses and accepts the offer, what will be his ROI?