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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

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Answer: $4,000

Explanation:

The house is worth $200,000 in the present when you bought it.

When you sell it in a year, it would have appreciated by 2% over the capital that you invested as per the expected increase in Real Estate rates.

Your capital gain therefore is that 2%;

= 2% * 200,000

= $4,000

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