A Wyoming investor uses leverage (an 80% LTV mortgage) to purchase a $500,000 property. If the property value increases 10%, what is the return on the equity investment?

Explanation

Down payment (equity) = $500,000 x 20% = $100,000. 10% appreciation = $50,000 gain. Return on equity = $50,000 / $100,000 = 50%. This illustrates financial leverage—a 10% property appreciation produces a 50% return on the equity invested.