• Figure out the investment gain for the deal you are analyzing. This is the amount of money you’ll make before expenses. So, if you make $500 per month on your rental property, multiply it by 12 months a year, and your investment gain will be $6,000. • Add up all your operating expenses. This should include, but may not be limited to: taxes, insurance, repair costs, and any other expenses you know or think you might have. If you pay $1,200 in taxes, $450 for insurance, and $900 in repairs, your total expenses would be $2,550 for the year. • Subtract your expenses from your investment gain: $6,000 - $2,550 = $3,450. • Divide the figure from step three by the price of your investment. So, if you bought the property for $75,000, then $3,450 ÷ $75,000 = .046 • Finally, turn the figure from step four into a percentage. In this case, 4.5%. This number is your ROI. Again, you need to know what your bottom line is, i.e., how much you want to spend and what your ROI should be. If the price of buying and/or fixing up the property is too high and/or the ROI is too low, it’s time to move on and find another property that better fits your goals.
MAKING THE NUMBERS WORK - COMMERCIAL
When you’re working the figures, there are some different approaches for commercial properties. The cost approach includes the current value of the land plus the cost of the building. The sales comparison approach looks at neighboring
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