Rate of Return on Investment is the profitability ratioThe rate of return on investment ratio (ROI) is one of the most widely used methods to evaluate how well we do with our money. We invest for profit to get a return on our investment more of than 20% in this real estate investing game. Rate of returns of 40% or 80% are out there for real estate investors. We want a better return on our money and the time spent than we can get from a saving account or other low-risk investment. The use of this ratio is before investing, as well as a final evaluation after the deal is done. (divide income before taxes by cash used) x 100 = ROI% Income before tax is = Gross rents minus expenses (that are about 50% or little less).
My "Accounting" page is here to help
This is a good example of using moneyGross rents = $48,000 (10 one bedroom apt. rented $400/mo x12);Income before taxes = $20,000 (from $48,000- $28,000 expenses); Cash used = $10,000 at closing; ($28,000 / $10,000) x100 = 280% ROI first year; Good deal! If hypothetically I double the cash used to buy, say $20,000, then your ROI will be "only" 140% first year. This is a more realistic case when the property agreed price is $200,000 and the 10/20/70 financing is used (10% your cash /20% seller financing /70% bank mortgage).
" You profit when you buy not when you sell"
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