Problem:
You are interested in a foreclosed property that a local bank is willing to sell for $150,000. You intend to hold the property for one year and then sell it, at which time you expect to pay selling costs of $8,000. You are able to get an interest-only home equity loan on your principal residence for $130,000 at 7% to finance the purchase. The loan will be repaid when the house is sold. Acquisition fees incurred to purchase the property amount to $12,000. The holding costs for the year, including interest, are expected to be $36,000, payable monthly. What must the property sell for at the end of the year to repay the loan and cover all costs and to earn you a 20% return on your investment? Please provide all computation and formulas.