Question

As a real estate​ speculator, you are planning and able to buy a house that costs​ $200,000, borrowing the full amount with no money down with the goal of selling this same property in exactly one year. Mortgage interest rates are​ 5%, and the expected increase in housing prices is​ 2%.​ (All rates and percentages are annual​ values.) What is your expected capital​ gain/loss when you flip the house in one​ year? The expected capital gain​ (or loss) is

Answer 1

expected capital gain when you flip the house in one year is $4,000.

expected capital gain = expected increase in housing price * cost of the house

= 2% ($ 200,000)

=$4,000