Calculate the Loan to Value ratio, the Debt to Equity ratio and the Equity Multiple for a parcel of vacant land that was purchased for $$10,000,000,$ with a mortgage of $$7,000,000$ and equity of $$3,000,000$ and sold one year later for $$12,000,000$ after costs.

What are some of the advantages and disadvantages of using leverage in real estate investments?

A real estate developer is considering two different financing options for a $$5$ million project. Option $1$ involves financing the project with $100\%$ equity, while Option $2$ involves financing the project with a $$3$ million mortgage with interest only repayments of $$300,000$ per year and $$2$ million equity. If the project generates a net operating income of $$500,000$ per year, which option provides a higher return on equity invested? Show your calculations.

What calculation can you undertake to determine if it is appropriate to use leverage to purchase a real estate asset?