Clare and Alan are undertaking a preliminary review of the possible purchase of the tiny house and how it

Clare and Alan are undertaking a preliminary review of the possible purchase of the tiny house and how it might impact their family budget. Identify and discuss the key financial issues they need to investigate.

For discussion purposes, assume that the cost to purchase and fully install the tiny house is estimated to be AUD100,000 (the supplier has offered to arrange finance on reasonable terms) and net income (after allowance for expenses and tax) from short term rental is expected to be in the range AUD13,500 to AUD18,500 per year. The tiny house has a useful life of 10 years.

The financial data above is for reference only. Detailed calculations are not required. The discussion should focus on the key financial issues at a conceptual level.

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Expert Solution

I think Clare and Alan should buy the house, keeping financial issues in mind they should buy the house in installments in this way their liquidity will not be hampered, this will help clan and Alan to have money in hand and get possession of the asset as well.

After from this they can rent out the tiny house with rental income ranging from 13500 to 18500, in the worst of cases the net income will not fall less than 135000 which is more than the cost of house of 100,000. Apart from these financial issues they should also take into consideration repair and maintaince of the tiny house from time to time because this will add to the cost of the asset.

Also they have to look into vacancy ratio in the area as well when the tiny house is kept idle between the possessions of two tenants exchanging the hands in the house.

Umair answered 1 year ago

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