A house worth $700k is expected to earn $30k pa gross rent revenue and incur rental costs of $10k pa over the next year. Note that the units 'k' (Greek kilo) represent thousands. Assume that these cash flows are expected one year from now, so they’re received and paid annually in arrears.
If the gross rent revenue and costs increase by 2% per annum and houses can be valued as a perpetuity, what is the internal rate of return (IRR) of buying this house asset? Ignore taxes.