Real Estate Math
A Montana investor uses leverage to purchase a $500,000 property with 25% down ($125,000). If the property appreciates 5% in one year, what is the return on the investor's equity (cash-on-cash for appreciation only)?
A5%
B10%
C20%✓ Correct
D25%
Explanation
Appreciation = $500,000 x 0.05 = $25,000. Return on equity = $25,000 / $125,000 (equity invested) = 0.20 = 20%. Leverage amplifies the return on equity compared to the appreciation rate.
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