A retail shopping center is purchased for $2.1 million. During the next four years, the property appreciates at 4 percent per year. At the time of purchase, the property is financed with a 75 percent loan-to-value ratio for 30 years at 8 percent (annual) with monthly amortization. At the end of year 4, the property is sold with 8 percent selling expenses. What is the before-tax equity reversion?
| Item | Amount |
| Loan amount = 0.75 x (2,100,000) | $1,575,000 |
| Monthly payments | 11,556.79 |
| Remaining mtg. balance | 1,515,450 |
| Selling price [2,100,000 x (1.04)4] | 2,456,703 |
| less: Selling expenses (at 8% of SP) | 196,536 |
| Net selling price | 2,260,167 |
| less: Unpaid mtg. balance | 1,515,450 |
| Before-tax equity reversion | $ 744,717 |
