# Rate of Total Return (business)

• Sep 18th 2005, 12:08 PM
kurtolios
Roberto and Talia Luongo are considering the purchase of a condominium as an investment. The purchase price of \$145,000 includes major appliances. They would pay 30% of the purchase price using their own money and borrow the remaining 70% on a mortgage loan. They should be able to rent the condo for \$850 per month. Their expected expenses are: property taxes of \$1800 per year, strata corporation (maintenance) fees of \$130 per month, and mortgage interest of \$6160 in the first year. What will be the Luongo's rate of total return (on their own money) during the first year if the property decreases in value by 2%?

Formulas (in case u need them)

I need to find the capital gain yield + Income gain yield in order to find the rate of total return.

:confused: :confused: :confused:
• Sep 18th 2005, 02:48 PM
MathGuru
Return on Investment
Their investment = 30% = .3*145,000 = 43,500

Income from investment in the first year = \$850/mo * 12mo. = \$10,200

Expenses for one year =

-\$1800 + (-\$130/mo*12mo) + (-\$6160) = -\$9520

depreciation of investment = -(2% of house) = -(.02*\$145,000) = -\$2900

To get the rate of return we divide there net earnings for one year by the total investment

Net earnings = \$10,200 - \$9520 - \$2900 = -\$2220

-2220/43500 = 0.051
• Sep 18th 2005, 03:05 PM
kurtolios
first of all,
thanks very much.

second of all,
you are wizard of wizards.

:D :D