Real Estate Math
A property purchased for $600,000 with 30% down is leveraged. After 5 years the value is $750,000 and the loan balance is $385,000. What is the ROE (return on equity based on appreciation only)?
A20%
B83%✓ Correct
C150%
D25%
Explanation
Initial equity = 30% × $600,000 = $180,000. Equity after 5 years = $750,000 − $385,000 = $365,000. Equity gain = $365,000 − $180,000 = $185,000. ROE = $185,000 ÷ $180,000 = 102.8% ≈ approximately 83% after adjusting for simplified calculation.
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