Question

You purchased a property for P4.25M. In the first month that you bought the property, you spent quarter of a million on repairs and remodelling. Immediately after the property was fixed, somebody offered you P5.45M for the property. After some thought, you decided to keep the property and have it rented for P45K per month starting two months after the remodelling. You collected rent for 15 months and then sold the property for P6M. If the interest rate was 1.5% per month, how much extra money did you make or lose by not selling the property immediately after it was remodelled?

Answer 1

Purchased a property for P4.25 Million at an interest rate 1.5 per month. Spent quarter of a million on repairments and remodelling. So, the cost incurred by the individual in the first month is:

For repairment = 1/4 of 1,000,000 = P2,50,000

For interest payment = 1.5% of 4,250,000 for a month = P63,750

So, total cost incurred after purchase is P2,50,000 +P 63, 750 = P3,13,750

The purchase price is P4,250,000. Hence the total cost = P4,250,000+P3,13,750 = P4,563,750

He gets an offer to sell at P5,450,000. So, he gains P5,450,000-P4,563,750 = P8,86,250

He decides to keep the property and give it on rent at P45,000 per month for 15 months.

So, his total earning from rent = P45000*15 = P6,75,000

When he decides not to sell the property he has to pay the interest on P4.5 Million for the 15 months at an rate of 1.5 so, his total interest payment is 1.5% of P4.5M for 15 months = P9,56,250

He has incurred the repairment cost in the first month which equals P2,50,000

So his total cost inclusive of interest payment and repairment cost is P4,500,000+P9,56,250+P2,50,000 = P5,706,250

He now gets an offer of P6 million for the property and he has earned a rent of P6,75,000 over the 15 months period. Hence his total earning if he sells the property is P6,000,000+P6,75,000 = P6675000

He gains from selling the property = P6675000 - P5,706,250 = P9,68,750

So by waiting for 15 months he gains an extra amount which equals P9,68,750 - P8,88,250 = P80,500

He makes an extra money of P80,500 by not selling the property immediately after remodelling and by waiting for 15 months to sell the property. He gain percentage is (P80,500/P8,88,250)*100 = 9.06%