Investment
The choice of paying rent will mean the loss of the funds as an individual. The investment decision for Francis will be based on the amount of money that he can gain or lose. The use of the premises will mean that there will be no cash inflows. The renting out of the place indicates that Francis will obtain 420000 dollars in 30 years (=30*0.035*400000). The mortgage is 20000 dollars higher than the acquisition cost.
The investment comparisons will be based in the assessment of the property taxes. The property tax for the facility will cost the management 120000 dollars. The payment of the taxes will leave the management with 300000 (420000- 120000) dollars as the revenue from investing 400000 dollars. The renting out of the place will reduce the overall profitability of the firm. A comparison of the investment is based on deciding whether to use the place as a home or to rent the facility. The basic numbers allow the showing of cost of many years to buy the home. The other issue will be renting for tying up of the 80000 rather than investing it to the stock market. The market rate is four percent will offer the investment of 3200 in a year.
In conclusion, Francis should invest in the investment. The renting out of the facility will increase the profitability. The holding of the facility for 15 years will reduce the impact of the property cost. The mortgage for 15 years will be 210000. This is about 1/2 of the mortgage. This means the amount is sold after 15 years for owing of about 210000. The original amount is 320000, plus the value of appreciating at 5% year. The fifteen year will be based on the worth about 210000.
Reference
Steve H. (2008). David G. Kittle on Residential Mortgages and Building Wealth. Journal of Financial Planning, 21, 11, 312- 385
