You are deciding whether to own or rent a single family residence. You could rent the property for $2,000 a month, or you could buy the property for $200,000 and finance it with a 85% LTV fixed-rate fully amortizing 30 year mortgage at 4%. You expect an annual appreciation rate of 3%, maintenance and insurance at currently $1,200/year and increase by 2% a year, you have a 28% marginal tax rate, and plan to live in the property for five years. Selling costs would be 6.5% of the sale price and property taxes are 1.5% of current property value.
What IRR would you earn based on this 5 year holding period?