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In: Accounting

You have the opportunity to buy a piece of land with your brother-in-law, Joseph Wheeler Dealer....

You have the opportunity to buy a piece of land with your brother-in-law, Joseph Wheeler Dealer. The land can be purchased for $1,500,000 and Joseph is 100% positive that it can be sold for $2,250,000 in seven years. In fact, he will guarantee this sale price (assume the $2,250,000 is actually achieved). As he says, "this is a no-brainer 50% return." What do you think the actual returns will be? The property is in Miami-Dade County Florida and needs to be fenced. You might also need liability insurance. You can pay cash or finance the project (easier to model a cash transaction). The cleanest assumption is to assume no debt. (There are no "tricks' to this, you just need to an investment analysis and think about all fees, income and costs associated with transaction). Do you have all the holding costs? Probably the best way to do this is with a short excel program. This requires TVM calculations! Is this a 50% return? Or is that golf club accounting.

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