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re: Information for my fellow Real Estate Investors
Posted on 1/15/16 at 11:55 am to Fat Bastard
Posted on 1/15/16 at 11:55 am to Fat Bastard
Happy this thread was made, I’ve been working on analyzing some properties and have a question about calculating ROI. Example:
Purchase cost: $100,000
Down payment: $20,000
Monthly Rent: $1,000
Mortgage+Insurance+tax: $600
Maintenance: $100
Repair Contingency: $100
Vacancy Contingency: $50
Positive cash flow/Month: $150
PCF/Year: $1,800
Do I judge your ROI on my cash flow before contingencies or after? Is my ROI $1,800/$20,000 or ($400x12)/$20,000 or somewhere in between?
Purchase cost: $100,000
Down payment: $20,000
Monthly Rent: $1,000
Mortgage+Insurance+tax: $600
Maintenance: $100
Repair Contingency: $100
Vacancy Contingency: $50
Positive cash flow/Month: $150
PCF/Year: $1,800
Do I judge your ROI on my cash flow before contingencies or after? Is my ROI $1,800/$20,000 or ($400x12)/$20,000 or somewhere in between?
4
Posted on 1/15/16 at 12:20 pm to poochie
In a purely analytical sense, your ROI is what you clear divided by what you put in. I see you have a lot of contingencies in the equation. Are you taking money out every month for those contingencies? If you are, then that is a 'debit', or money you don't put in your personal pocket, and needs to be in the ROI calculation. Now, you may find that you build up a nice safety net over time if you don't have to draw on the contingency account, and you may want to tweak how much you're saving a month for contingencies, but I think you keep it in the ROI formulation at this point.
This post was edited on 1/15/16 at 12:21 pm
Posted on 1/15/16 at 2:12 pm to poochie
quote:
Happy this thread was made, I’ve been working on analyzing some properties and have a question about calculating ROI. Example:
May want to page ILoveBama to this thread. He had a good spreadsheet that showed how he analyzed his investment real estate.
Posted on 1/2/17 at 2:28 pm to poochie
quote:
Happy this thread was made, I’ve been working on analyzing some properties and have a question about calculating ROI. Example:
Purchase cost: $100,000
Down payment: $20,000
Monthly Rent: $1,000
Mortgage+Insurance+tax: $600
Maintenance: $100
Repair Contingency: $100
Vacancy Contingency: $50
Positive cash flow/Month: $150
PCF/Year: $1,800
Do I judge your ROI on my cash flow before contingencies or after? Is my ROI $1,800/$20,000 or ($400x12)/$20,000 or somewhere in between?
Don't you get a depreciation writeoff for the building? Tacks on at the end but should save you a little in income tax.
Posted on 10/26/17 at 9:32 am to poochie
You have to separate that mortgage payment into interest and principal to make that calculation honestly.
Let's however assume your interest in year one is $3000.
I suggest you use your actual profit number plus interest and use ROIC as your benchmark. ROIC needs to be more than your interest rate on your mortgage for sure---much more for my taste. In your scenario then your profits--forget cash flow for a minute--are $12000 rent income minus $3000 interest minus the expenses you mentioned ($4800) for a total of $4200. Deduct some depreciation say $3000 and some income tax say $400 and your net profits are $800. Your ROIC would be ($800+plus the interest add back of $3000)/$100000 or 38%.
Let's however assume your interest in year one is $3000.
I suggest you use your actual profit number plus interest and use ROIC as your benchmark. ROIC needs to be more than your interest rate on your mortgage for sure---much more for my taste. In your scenario then your profits--forget cash flow for a minute--are $12000 rent income minus $3000 interest minus the expenses you mentioned ($4800) for a total of $4200. Deduct some depreciation say $3000 and some income tax say $400 and your net profits are $800. Your ROIC would be ($800+plus the interest add back of $3000)/$100000 or 38%.
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