Question

Let's see how leverage works in real estate investments. If you compare the answer on this question to the previous question where there was no leverage, you will quickly see why people can make so much money in real estate by taking some big risks. You buy a property for $200,000. You pay $20,000 in cash and borrow $180,000 interest free! At the end of the year, you sell the property for $240,000. What is your gain and return on investment?

Answer 1

Answer:

gain on sale 40,000

RoI 200%

Explanation:

The gain will be:

sales - cost = gain

  240,000 sales price

- 200,000 cost

   40,000 gain

If the loan generate interest, those interest should be subtracted.

return on investment

$\frac{Net\:Earnings}{Investment}$

the loan is not part of the investment, only the 20,000 you invest is consider.

40,000/20,000 = 200%