A condo is purchased for $200,000. It has monthly taxes of $55, monthly fees of $315, and other monthly expenses of $50.

Question

 A comparable apartment costs $1500/month to rent. Five years later, the condo is sold for $290,000, but the real estate agent keeps 5% of the selling price. Calculate the total rate of return received by the owner, rounding to the nearest 0.1%. (Hint: Only count what they received from the sale.)

Answer 1

Return on investment = (Income - Cost) / Cost

 

In this case, the Income = $290,000

The costs = ($55/m + $315/m +$50/m) • 60m = $25,200

Real estate agent fee = $290,000 • 0.05 = $14,500

Original purchase price = $200,000

Total costs  = $25,000 + 14,500 + 200,000 = $239,700

Income = $290,000 - 239,700 = $50,300

 

Return on investment = ($290,000 - 239,700)$200,000 = 0.2515 = 25.15%

 

But, the profit was gained over 5 years, so the average return was 25.15% / 5 = 5.03% per year.