How to Calculate ROI as a Real Estate Investor, PT 3 By: http://geniustypes.com/ Using Leverage for a Higher ROI
“All In” • About 30-40% of Profit Available in Profit Deal • So never be “all in” for more than 70% of the after repair value • “All In” includes purchase, repairs, and anything costs associated with buying and repairing
ROI on Equity • On a $100,000 property you’d be “all in” for $70,000 and have $30,000 in equity • If you sell it immediately you have to pay transaction costs which end up costing about 10% of ARV • Now you have 20% net profit • 20% divided by “all in” gives you a 28.5% return on investment based on equity
ROI on Cash Flow • Let’s say you hold this property and it cash flows $700 a month • Multiply that by 12 and you get $8400 dollars a year • If you divide this by your “all in” you get a 12% ROI on cash flow
Combined ROI’s • If you add your ROI from cash flow and your ROI from equity together you get about 40% • You can make money by borrowing at a lower rate than your ROI • For example, if you borrow at 12%, and you have an ROI of 30% you get to keep the difference as profit!
Leverage • If your out of pocket is low because you effectively leveraged other people’s money, you’ll get an even higher ROI! • Real estate investors make a profit because of the spread between what they borrow and what they get that money to do
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