No matter what you want to do with your life, be passionate (Bon Jovi)
No matter what you want to do with your life, be passionate (Bon Jovi)
(Please ensure to discuss with your financial and tax advisor to explore your best option because each person has different situations)
ROI measures how much money or profit is made on an investment as a percentage of the cost of that investment. Also, It shows how investment dollars are being used to generate profits. Knowing ROI allows you to assess whether putting money into a particular investment is a wise choice or not.
ROI can be used for any forms of investment including a piece of real estate.
ROI = Cost of Investment Gain on Investment − Cost of Investment
Calculating a property's ROI is fairly straightforward if you own/buy a property with cash.
Here's an example of a rental property purchased with cash:
(Assumption*: When calculating, please assume the high side, just in case, so you can budget things out)
Based on Purchased Property at $400,000: To calculate the property’s ROI:
(You may have more potential incomes if you collect more in some month: this calculation is based on $3,500 rent per month)
Based on Purchased Property at $250,000 (bought quite some times ago): To calculate the property’s ROI:
Based on Purchased Property at $98,000 (original bought long times ago): To calculate the property’s ROI:
If at any point you realize that your costs and expenses will exceed your ROI, you may need to decide whether you want to ride it out and hope you'll make a profit again—or sell so you don't lose out.
There are some write off expenses, real estate appreciation in time, etc. please consult with your CPA or financial advisor.
There may be additional expenses involved in owning a rental property such as gaps in between rental periods, repairs, maintenance costs, re-modeling or any reason.
Before you do anything, calculate and re-calculate for Both High Estimate and Low Estimate for Incomes and Expenses, so you will get ideas on how much rental income will generate. This gives you a chance to compare it to other investment ventures that you may have in mind. If investing in property is not the right choice at the time, there will be time to get in again.
It always comes down to your own self, what is your goal that you want to succeed?
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Thidarat "TT" Tungwongsathong
Master of Business Administration
Bachelor of Arts
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