Alt Inv: Real Estate DCF Model Question building, following, financing, office, investor

rosewhite

An investor made the following purchase:

Bought an office building for $500,000 using 90% financing.
The borrowing cost was 10%.
They received $29,000 at year-end from rentals.
They sold the building for $520,000 at the end of the year.

Assuming a flat tax rate on income and capital gains of 25% what was the return on equity?

A) +6%.
B) -3%.
C) +10%.

ATCF = (Income + Capital Gain - Interest)(1 - tax rate) - Principal component of Mortgage Amount.

From the data provided, there is no way to calculate the Principal component of Mortgage.
Is it OK to just ignore it and assume NOI = ATCF?

bluejazzy

The qn asks for calculations for the year end.
ROE would be after payment of entire outstanding principal. So it does not matter.

450K loan, 45K interest payment.
29K (rental income) - 5K (25% of 20K capital gain) - 45K (interest payment) = -21K (loss) so no income tax.
Coming to capital gains, 20K (after repayment of principal)
Net loss = 1K
Equity=50K
So its a loss of 2%, close to B)

[I am not sure where I missed 5k]