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You are to start a new job earning $10 000 / month, plus allowances to the...

You are to start a new job earning $10 000 / month, plus allowances to the sum of $2300.00/month.

You are on contract for 3 years after which a review will be done to determine your progress.

You are confronted with an offer to invest in real estate which would entail utilising some of your allowances to pay for it. The investment will require you to spend over a 5 year period to complete payment. How would you go about making a decision about what to do or not to do?

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Expert Solution

In my opinion, the decision to invest in real estate should depend on the amount of money that can be saved on a monthly basis. Further, the value of payment towards the investment shouldn't exceed the amount of savings in any case.

It can be assumed that the amount of monthly/annual payment will remain constant over the period of 5 years.Therefore, the amount of adjustment towards the allowances will also remain constant over the period. It would be important to ensure that the payment can be made from sources other than the allowances after the contract period is over (as at this point of time it is not certain that the contract will be renewed). If the payment can be made from other sources (such as savings from monthly earnings) after the expiry of contract period and the investment proposal seems to be attractive today, the investment can be made. However, if the payment cannot be made from sources other than specific allowances, than it would be advisable to not proceed ahead with the investment as there can be an issue if the contract is not renewed after the 3 year period or specific allowances are not provided after the renewal of contract. Therefore, it is essential to study the terms and conditions of the investment proposal and also anticipate the potential returns/gains and risks that may be associated with the investment in real estate.

jeff jeffy answered 16 hours ago
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