1 of 3

Write now Article Tools

Page 3 of 4

property is even purchased can not only help in future calculation of return on investment, but also the front end costs. The tips below can help with the calculation of and the forecasting of return on real estate investment.

*Develop a bookkeeping system
*Utilize Investment return equations in forecasting return
*Investigate all tax implications, costs, and benefits

*Assess market conditions and real estate potential
*Optimize property income
*Reduce costs

Return On Investment Equations and Software:

When forecasting and calculating annual rather than total end profits on real estate, numerical equations and software tools can be used to calculate return on investment. These tools can be especially useful amidst business property investments within fluctuating market conditions. In other words these tools help organize the many variables of property management into orderly numerical functions that provide quick and accurate answers provided the input numbers are correct. A few examples of such equations are listed below:

*Debt Coverage Ratio: Operating Income/Mortgage costs (associatedcontent, Butler)
This equation measures annual income as a percentage of cost. A division ratio that assesses profitability in terms of a ratio result rather than percentage amount. Also useful in assessing debt.

*Capitalization Rate Valuation: Net income before mortgage expenses including operating expenses/Capitalization Rate i.e. annual percentage rate of return(ezine.com, S.Gillman) Helps assess overall property value in terms of annual income before mortgages expenses are deducted.

*Total Yield: Annual Income/Sales Price (associatedcontent.com, Butler)
Measures annual income as a percentage of sales price and therefore does not include expenses and costs.

*Cash on Cash Return: Annual Income after mortgage costs/Downpayment (associatedcontent.com, Butler) Provides an annual estimate return on initial investment after costs and is good for assessing real estate investment risk and opportunity cost.

There are also several software packages and online tools that can be utilized to calculate annual returns on real estate investment. It can be a good idea to have a strong understanding of the big picture when utilizing such tools because the tools themselves only measure isolated circumstances of revenue and cost variables.

In other words, in order to acquire an accurate assessment of return one must 1) enter the correct input variables and 2) correctly sum and utilize the outcome of all applicable

• << previous page
• 1
• 2
• 3
• 4
• next page >>

Add your voice

Know something about Calculating your return on real estate investments?
We want to hear your view. Write now!