Word Problems/Real Estate


Some friends are urging me to chip in with them to buy a vacant parcel of land on the outskirts of our city. A one-fourth interest would cost me $10,000. Total annual expenses on the property are $2,200. When the property is sold, assume that I will have to pay a real estate commission of 10% of the selling price and that income taxes on profit will be 15% of the profit. If the property is sold after 3 years, how much will it have to sell for so that I can reap an average annual net return of 10% on my $10,000? Please explain how you get the answer.

Let x = selling price of land.

Since $10,000 represents a one-fourth interest, the purchase price of of the land is $40,000.
capital gain = x - 40,000
15% capital gains tax = 0.15(x - 40,000) = 0.15x - 6,000
10% realtor commission = 0.10x
other expenses = (3 years)($2,200/year) = $6,600
net return = gain - tax - commission - other
     = (x - 40,000) - (0.15x - 6,000) - (0.10x) - (6,600)
     = 0.75x - 40,600

(3 years)(10% of $10,000 per year) = $3,000
You want a net return of $3,000. Since you have a one-fourth interest, the target return is $12,000
0.75x - 40,600 = 12,00
x = $70,133⅓
If the property sells for $70,133.33, your share of the return will be $3,000.  

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Janet Yang


Word problems are my favorite type of math questions! I would not feel comfortable answering questions that require specialized knowledge (Physics, Statistics, etc.) because I have not studied these in depth.


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