Sam bought a house for $150,000 with some creative financing. The bank, which agreed to land Sam $120,000 for six years at 15% interest, took a first mortgage on the house. The Joneses, who sold Sam the house, agreed to lend him the remaining $30,000 for six years at 12% interest. They received a second mortgage on the house. Thus Sam became the owner without putting up any cash. He pays $1,500 a month on the first mortgage and $300 a month on the second mortgage. In both cases these are interest-only loans, and the principal is due at the end of the loan.

Sam rented the house to Justin and Shannon, but after paying the taxes, insurance, and so on, he had only $800 left and so was forced to put up $1,000 a month of his own money to make the monthly mortgage payments. At the end of three years, Sam sold the house for $205,000. After paying off the two loans and the real estate broker, he had $40,000 left. (Ignore taxes for this problem.)

(a) What rate of return did Sam receive on this investment (rounded to 1 decimal point)? (b) After an 8% annual inflation rate is taken into account, what was his rate of return (same rounding)?

Please provide steps.