zack childress procedure to calculate return on investment for an investment property

Zack Childress Procedure to calculate return on investment for an investment property

Zack childress-Whenever we have discussed about tax and mortgage,the return on investment was given the top priority. We have also witnessed that the home sales increased when the return on investment is high. In this article, the significance of ROI (return on investment) is discussed in detail.

ROI Calculations are manipulative. Some variables are included and some are excluded while calculating ROI. The ROI is a percentage of amount invested, received by the investors after the deduction of associated cost.
The purpose of ROI is to evaluate the investment as well as compare the similar properties in your neighborhood.

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How to calculate?

ROI is expressed as percentage or ratio.
ROI= Net profit of an investment / amount of money invested
The next step is to
Annual cash flow / out-of-pocket expenses
Out-of-pocket expenses include down payment, closing cost and remodeling.

We denote it as:

ROI= amount gained- invested cost / investment cost
In certain cases, we will have high ROI and investment will be low. The amount invested includes several variables like cost invested on repairs, maintenance and the leverage amount has to be determined. The mortgage amount will be your first requirement for the initial investment.

There are 2 methods to calculate ROI

Cost method:

The ROI is calculated by dividing the equity by all the costs.
Equity/ total cost

Out-of-pocket method

This method is preferred by higher ROI. Sometimes the property is not sold at market value. The investor should keep in mind that there are several other costs involved in while selling the house. The repair, maintenance and renovation work also requires lot of money.
The appraisal cost and real estate commission for the broker has to be included. These costs fluctuate as well, there is no fixed cost. They rise after a particular period of time.
Other costs include insurance, HOA fee if its condo or town home, utilities if any.
Advertising and commission expenses are negotiable. Developers owning more than one property are in favorable condition as they can negotiate even further.

Issues in ROI

Refinancing real estate property, second mortgage usually makes the process of calculating ROI complex.
For income tax and capital gain tax filing, ROI is required. Likewise if property tax is high, reassessment can be done.

Types of ROI

Cash -on-cash return of investment

Cash-on-cash return of investment = BTCF/Initial cash investment
BTCF =Net operating income- annual mortgage
BTCF is before tax cash flow
Net operating income= total income-total expenses
Total return on investment
It gives a comprehensive measure of the financial performance of a property.
Total ROI = (BTCF + Net sale proceeds- initial cash investment) / initial cash investment
Thus, this review helps us to get an idea on how ROI is calculated, what are the expenses to be avoided and taken care of.
Make sure the ROI is calculated with help of the qualified tax advisors, unprofessionalism may result in scam.
To learn more about Return on investment, check out the articles on REI quick cash system.



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