Harvard Business review free essay sample

For Alexander to purchase this piece of property, he needs to choose between two different sources of funding. Both of these options are based on a 20 year, 8 percent rate. Alexander has $80,000 of his own equity to invest in the project, a very small portion of the total capital investment. The first option that Alexander has is through a savings bank, transferring the mortgage from seller to buyer. The mortgages account for $400,000, bringing the total investment including Alexander’s contributions to $480,000. Expenses already incurred include mortgage origination fees and legal expenses, which are not included in the closing costs, which include the price of the property, bank fees, and $375,000 in escrow. After accounting for these calculations for remodeling, there is a $60,000 gap required to be paid from the initial $165,000. In addition to this large sum of money, this particular mortgage is loaned in stages, minimizing the cash flow available to account for closing costs. We will write a custom essay sample on Harvard Business Review or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Another mortgage option is a $450,000 loan from an alternate local savings bank. Again, Alexander will commit $80,000 from his own accounts, totaling $530,000 for the project. Closing costs for carry construction costs bank legal fees, mortgage origination, and legal expenses total $384,000, almost $10,000 more than the first option. This option includes more fees than the first; however, it also narrows the remaining gap in renovation costs from about $60,000 to just around $20,000. Combined with the faster amortization offered in this loan, option 2 is the wiser investment strategy for Alexander.