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Investing in a Private Residence

Buy custom Investing in a Private Residence essay

Buy custom Investing in a Private Residence essay


The process of  investing in private property is lengthy and demands a lot of attention and research. Private property is a huge investment, therefore, careful financial and feasibility research, as well as calculations, should be carried out in order to determine if the property is worth purchasing. Investment property is bought with the intention of re-selling for profit. Research is needed to determine the maximum sum that can be invested. Minimum Acceptable Rate of Return (MARR) and Internal Rate of Return (IRR) are the fundamental elements to be calculated when determining the feasibility of a project. The goal of this research is to estimate the costs associated with investment into a private residence, its renovations and determine the revenue from reselling it.

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Purpose of the Project

Purchase of private property is a huge investment that determines the financial capacity of the buyer after it is completed. The purchase of a private residence involves a lot of risks, and the buyer must be willing to take some of them without compromising his/her financial status. The investor is recommended to do a feasibility test for the project, looking into the budget as well as the profit that he/she is likely to draw from the investment. The uyer is required to understand all the parameters involved in the process of buying a private residence, its affordability, the maintenance costs, etc. so as to avoid making irrational decisions entailing unnecessary costs. These days, due to the availability of websites on investments and consultancy, buyers have a wide range of sources of information that can help them determine the best time and place to make their investment. This project will elaborate the procedure for assessing an investment into a private residence so as to determine whether or not it is worthwhile. Several tools and calculations will be employed to help determine the financial implications of the investment.

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Statement of Process

For the preparation of this project report, we took the case of a small investment firm in the real estate industry which was set up by three engineers. The primary purpose of this firm is to buy private residence estates, rehabilitate and sell them for a profit. The property under study is to go through a successful purchase, rehabilitation and reselling. In order to determine the feasibility of the project, the property under consideration must satisfy certain criteria. First, the project must be in the state allowing its completion in one year or less to yield short-run profits. Second, the Minimum Acceptable Rate of Return must noot go below the Internal Rate of Return. Third, the total costs involved in buying and rehabilitating the property must be within the budget of not more than $600,000. Finally, the property must not be in need of capital repairs and updates. 

In this project analysis, we will use a five-year interest-only investment loan for a property purchase or an Adjustable Rate Mortgage for five years, from an investment bank.  The loan requires that the interest is paid in fixed installments for the next five years on the day of acquisition. For us to make the credit purchase of the property, we will be required to make a down payment of five percent in cash to the seller. The bank will only charge us interest for the first five years, thus, reducing the monthly cost of sustaining it while the property is being refurbished for sale. The estimation of the refurbishment costs is based on the amount of repairs that are needed and the choice of materials available.  We will make use of property websites such as Redfin and Zillow in reaching the market for the purpose of reselling our refurbished home.  The calculation of the Minimum Acceptable Rate of Return and the Internal Rate of Return will be the determinants of the project’s economic validity. If we find out that the MARR is bigger than the projects IRR, then we can comfortably say that the investment is worthy.

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