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Unbeatable Return On Investments
ou must be able to obtain it would be a great deal for
suitable financing on the someone else who can obtain
property for it to be a better financing, it is not a
good deal. The type of financing good deal for you.
available, specifically to you,
can make the property more or The type of financing you are
less desirable. What may be a able to obtain will also affect
good deal for someone else may be your ROI, or return on
a bad deal for you. investment. The ROI determines
the rate of return an investor
This is usually determined by the will earn on the amount he was
type of financing that you are required to put down in order to
able to obtain to purchase the obtain the property. This rate is
property. Do not accept financing calculated by dividing the
that is so expensive that it will property's annual net income by
produce a negative cash flow just the investor's down payment.
because it is the only financing
that you can qualify for. If you For example, if a property's net
can afford the negative cash flow income is $4,000 per year and the
and are sure that you will be investor puts down $2,000 to
able to qualify for a more acquire the property, then his
reasonable loan that will allow ROI is 200 percent, ($4,000 /
the property to produce a $2000 = 200). If he did not have
positive cash flow in the near to come in with a down payment in
future, the purchase may not be order to acquire the property,
such a bad idea. then the return on his investment
is infinite. You cannot get this
The main point is, if you cannot type of return by placing $2,000
hold on to the property with into a savings account at your
financial comfort, whether or not bank! The investment that offers
the highest ROI without property's annual net income by
significant risk is the best the investor's down payment. The
place an investor can put his average annual appreciation and
money. The higher your ROI, the rent increase depends on the
greater your positive cash flow. area. You can find out what these
averages are through the area
In real estate, there are two demographics often found on the
types of ROIs: Internet, in local real estate
offices and at property
Simple ROI: This is when the ROI management companies.
is determined by taking into
consideration the annual cash Once you have these percentages,
flow that the property produces multiply the appreciation rate by
without taking into consideration the purchase price of the
the property's appreciation, property to determine the
average annual rent increase, and property's amount of annual
principal payments being paid appreciation; then multiply the
from the tenants' rents. rent increase percentage by the
property's gross annual rents to
Complex ROI: This ROI does determine the amount of annual
include a property's rent increase. To determine the
appreciation, rent increase and average annual principal
principal payments, as well as payments, just divide the entire
the property's annual cash flow. loan amount by the number of
To find this, you add the dollar years it will take before the
amount of the average annual loan is paid off. Now you are
appreciation, average annual rent ready to calculate the Complex
increase and average annual ROI.
principal payments into the net
income before dividing the For example, if the property's
annual net income is $4,000, its $320 + $3,333) divided by $2,000
average annual appreciation is (the down payment) = 582.6
another $4,000, the average percent per year. Wow! This is
annual rent increase is $320 and the most accurate determination
the average annual principal of an investor's return on
being paid off is $3,333 then the investment.
ROI is $11,653 ($4,000 + $4,000 +
About the Author:
Paul Pratt teaches simple steps to achieve unprecedented real estate wealth, making every situation profitable. His successes include a college drop-out, MBA graduate, waiter, and a stay-at-home mom. Live your dream at MYreiTEAM.com
Read more articles by: Paul Pratt
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