Real Estate Math
A Rhode Island investment property was bought for $400,000 and generates a net annual return of $32,000. What is the return on investment (ROI)?
A6%
B7%
C8%✓ Correct
D9%
Explanation
ROI = Net Annual Return / Investment = $32,000 / $400,000 = 0.08 = 8%.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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