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You inherit $1 million from your parents. You take an additional loan of $2 million, and use the proceeds to spend $3 million buying a
You inherit $1 million from your parents. You take an additional loan of $2 million, and use the proceeds to spend $3 million buying a small apartment complex. You do not spend any time managing the apartment complex, and instead hire a property manager. Annual operating profits are $120,000. Recall that operating profits do not take any account of interest expenses. The interest rate on the loan is 5%. The expected return on a REIT (real estate investment trusts) is also 5%. What is the annual economic profit of your apartment complex?
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