Preview

How to Calculate Return on Investment (Roi) for Property Rental Yields

Good Essays
Open Document
Open Document
585 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
How to Calculate Return on Investment (Roi) for Property Rental Yields
Case Study: How to Calculate Return Profits on Rental Property Investment

make more money through rental income property investment
Property Profile

Property Type : Serviced Apartment
Size : 821 square feet
Purchase Price : $ 235,900.00
Down Payment : $ 23,590.00
Home Loan Amount : $ 212,310.00
Home Loan Installment : $ 1,173.00 per month
Gross Rental : $ 2,200.00 per month
Expenses : $ 832.37 per month

* Service Charges = $ 164.05 * Sinking Fund = $ 16.79 * Quit Rent = $ 2.85 * Assessments = $ 23.51 * Fire Insurance = $ 16.00 * Property Agent Fees = $ 183.33 * Government Tax for Property Agent Fees = $ 9.17 * Tenant move in/out where 1 or 2 months rental income maybe lost = $ 366.67 (Assumed lost 2 months = $ 4,400. Therefore, Extra Cost per month = $ 4,400 / 12 months = $ 366.67) * Repairs = $ 50 * Total Expenses per month = $ 832.37 per month

Nett Rental = Gross Rental – Expenses
= $ 2,200.00 – $ 832.37
= $ 1,367.63

Monthly Cash Flow = Nett Rental – Home Loan Installment
= $ 1,367.63 – $ 1,173.00
= $ 194.63

Other Assumptions:
a) No Tax Implications on the Rental Income or on Disposal of the Property
b) No change in the rental rates, service charges or interest rates
How to Calculate Rental Yields

roi property rental investment calculation formula rental yields return
Analysis: Let’s compare to a Fixed Deposit (FD) at 3% per annum, this property’s rental yields at 6.96% is a good investment. As a guideline, the rental yields in property must be more than double the existing Fixed Deposit rates. Properties take longer time than FD to cash out because properties are not liquid assets. Besides, properties involved with numerous property and management issues. Therefore, double the returns of FD rates in rental property investment are a reasonable benchmark.
How to Calculate Cash on Cash Return

This formula is mainly to calculate your yearly Nett Cash Inflow from the investment
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Powerful Essays

    Concordia Real Estate Inc Case Study: Analysis of the Investment Opportunity
    • 3248 Words
    • 13 Pages

    Concordia Real Estate Inc Case Study: Analysis of the Investment Opportunity

    This report will examine the commercial property that Concordia Real Estate Inc is considering as a potential investment opportunity. The project is being evaluated over an investment horizon of twenty years with total costs estimated to be approximately $20.06M. If accepted, Concordia Real Estate Inc plans to finance the project entirely with cash. The investment’s profitability will be analyzed using several key financial indicators. Based on the results of the analysis a recommendation will be made as to whether or not the project should be accepted. The key results of the analysis are listed below:…

    • 3248 Words
    • 13 Pages
    Powerful Essays
    Read More
  • Good Essays

    Case Study: Big Bear Power Public Utility Company
    • 1151 Words
    • 5 Pages

    Case Study: Big Bear Power Public Utility Company

    According to ASC 840-10-25-4, “lease payments that depend on an existing index or rate, such as the consumer price index or the prime interest rate, shall be included in minimum lease payments based on the index or rate existing at lease inception; any increases or decreases in lease payments that result from subsequent changes in the index or rate are contingent rentals and thus affect the determination of income as accruable.” This means that the CPI of 4% will be used to calculate the rent payments after the first year. So, to calculate the first years rent, you first need to know how much of the legal fees discussed in Provision One are being amortized per month. We got this by dividing the $1,000,000 over the life of the lease, 120 months, to get $8,333.33 per month. This is added to the first years monthly rent of $83,333.33 for a total rent per month of $91,666.66. The second years initial monthly rent will increase by 4% according to the CPI, bringing the base rent to $86,666.67 for a total monthly rent (including amortization of legal fees) of…

    • 1151 Words
    • 5 Pages
    Good Essays
    Read More
  • Good Essays

    Salem Telephone Company Case Analysis
    • 454 Words
    • 4 Pages

    Salem Telephone Company Case Analysis

    1.) VARIABLE EXPENSES - Power - Operations (hourly personnel) FIXED EXPENSES - Rent - Custodial services - Computer leases - Maintenance - Depreciation - Operations (salaried staff) - Systems development and maintenance - Administration - Sales - Sales promotion - Corporate services 2.) VARIABLE EXPENSES: COST/HOUR JAN. FEB. MAR.…

    • 454 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    Revere Street Case Study
    • 1710 Words
    • 7 Pages

    Revere Street Case Study

    Edward Alexander a Harvard graduate is looking to invest in a small income producing apartment building in the Back Bay-Beacon Hill area of Boston, Mass. He currently has $80,000 dollars saved up to purchase this property. He began his search for the perfect property checking current listings and prices using, www.bankrate.com and www.realestate.boston.com. Due to many of his friends living in the area he gained access to eNeighborhoods a program that allowed him to enter addresses and it would show the previous 25 properties sold. Most properties observed sold for $700,000 and higher and required an initial equity investment of $150,000. Since he only has $80,000 in equity he plans to take out a mortgage to cover this cost. He found that the listings he came across were rundown and in bad condition. Such as one property on Myrtle St. This property showed a 20% return on cash investment, but did not account for repairs, vacancies, or management expenses. With these included the cash return would be only 3%. The values of many buildings on Beacon Hill had doubled or tripled in the past ten years due to a large amount of wealthy professionals anxious to own real estate. Alexander therefore believed that an apartment building in the Beacon Hill area would be a safe investment due to little chance of depreciation for functional or economic causes.…

    • 1710 Words
    • 7 Pages
    Good Essays
    Read More
  • Powerful Essays

    Tno Inc Audit Case
    • 12792 Words
    • 52 Pages

    Tno Inc Audit Case

    The decrease in the property market ultimately decreases the value of assets in TNO Ltd and such presents the risk of overstatement of the value, or understatement of the impairment of the property. This influences the current liquidity ratios, and may be the reason for an increased ratio (Appendix B), when there should be a decline as indicators have presented. This is mainly apparent in the director 's valuation of investment properties. (Note 8 of the financial reports). One property has not decreased from the previous year, and one was purchased in the current year. This could be an indication of a fraudulent…

    • 12792 Words
    • 52 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Revere case study
    • 535 Words
    • 3 Pages

    Revere case study

    The expected return of potential investment building: By generating my potential investment return and comparing it with the return of the real estate as well as…

    • 535 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Business Analysis: Sofia Lofts ULI Case
    • 584 Words
    • 3 Pages

    Business Analysis: Sofia Lofts ULI Case

    Peca, S. (2009). Real Estate Development and Investment: A Comprehensive Approach. Hoboken, NJ: John Wiley & Sons, Inc.…

    • 584 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Revere Street Case Study
    • 1117 Words
    • 5 Pages

    Revere Street Case Study

    Mr. Alexander is a gentleman that is looking to build his investment portfolio through residential real estate. He is looking at investing in a 4-plex in a historical district located within Boston, Massachusetts. The building is located on Revere Street and has a listing price of $350,000. Mr. Alexander is evaluating the possible commitment to understand what he stands to gain from the annual cash flows while at the same time understanding the risks involved. The subject property is located within a historical district and is not yet capable of housing tenants. Property will require significant improvements prior to inhabitation. Client will be looking to secure a mortgage to facilitate the purchase of the property. All variables must be assessed and measured to provide Mr. Alexander with a recommendation to purchase said property and make any adjustments to the structure of the deal or to pass on deal all together. Our client also desires to live in the apartment building, and this must be taken into consideration both from a fundamental perspective as well as financial one.…

    • 1117 Words
    • 5 Pages
    Good Essays
    Read More
  • Good Essays

    practice exam 2
    • 663 Words
    • 7 Pages

    practice exam 2

    Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is…

    • 663 Words
    • 7 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Salem Telephone Case Study
    • 812 Words
    • 4 Pages

    Salem Telephone Case Study

    The fixed costs in March = total expenses - variable costs = $223,300 - 1,697 - 8,664 = $212,939…

    • 812 Words
    • 4 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Border Hotel Case Calculations
    • 1302 Words
    • 21 Pages

    Border Hotel Case Calculations

    Revenue Estimates Revenue Item 100% Monthly 75% Monthly 50% Monthly Notes Rooms $2,956,500 $2,217,375 $1,478,250 8,100 daily Leases $180,000 $135,000 $90,000 TOTAL REVENUE $3,136,500 $2,352,375 $1,568,250 Expences TOTAL VARIABLE COSTS $454,000 $340,500 $227,000 TOTAL FIXED COSTS $1,403,000 $1,403,001 $1,403,002 TOTAL EXPENSE BEFORE IT $1,857,000 $1,743,501 $1,630,002 EBIT $1,279,500 $608,874 -$61,752 Depreciation $320,000 $320,001 $320,002 EBITDA $1,599,500 $928,875 $258,250 Furnishing Interest $110,000 $110,000 $110,000 20yr Mortgage Interest $182,000 $182,000 $182,000 TOTAL INTEREST $292,000 $292,000 $292,000 TAXES (40%) $395,000.00 $126,749.60 -$141,500.80 Furnishing Principal $180,160 $180,160 $180,160 20yr Mortgage Principal $49,713 $49,713 $49,713 TOTAL PRINCIPAL $229,873 $229,873 $229,873 NET INCOME $362,627 -$39,749 -$442,124 DIVIDEND PAYMENT $29,010 -$3,180 -$35,370 RETAINED EARNINGS $333,617 -$36,569 EBIT/INTEREST 4.38 2.09 (0.21) EBITDA/INTEREST 5.48 3.18 0.88 BURDEN $675,121.67 $675,121.67 $675,121.67 EBIT/BURDEN 1.90 0.90 (0.09) ROE= Net Income/OE (H1) 32.97% -3.61% -40.19% Revenue Estimates Revenue Item 100% Monthly 75%…

    • 1302 Words
    • 21 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Minimum Wage Job Essay
    • 585 Words
    • 3 Pages

    Minimum Wage Job Essay

    Moving out would not be the best option for me because I cannot afford to live the lifestyle I prefer on a minimum wage paycheck. I took to Google to look for an apartment suiting my preferences and found the Langham Apartments, located in Los Angeles, on apartmentguide.com. It costs $1015 monthly to rent a 250 square feet studio room. That would only leave me with $378.15 for other expenses. After calculating the bills for my utilities and other services, the total comes out to be $162 for gas, electricity, water, home phone, wi-fi, and cell phone. In the situation involving the Langham Apartments, my rental fee does cover my utility bills for gas, electricity,…

    • 585 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Return on Investment
    • 1719 Words
    • 6 Pages

    Return on Investment

    Experts argue that its essentials to establish ROI parameters before embarking on new public health projects especially those involve acquisition of new information technologies. This means that before embarking on the projects, organizations should calculate the incremental gain from such actions basing their parameters on the long term gain. Before undertaking healthcare information systems and related projects, top decision makers should evaluate the investment potential by comparing the timing and magnitude of the benefits to the investment costs. On this reason, an effective determination of ROI of information systems on healthcare helps to provide an excellent decision in consideration of alternative designs for their performance, stakeholder expectations and costs. A recent study by The Standish Group International Inc., has found that the U.S had wasted over $55 billion, which was an increase in unnecessary overspending for IT related projects in healthcare. The determination of ROI on healthcare systems helps to avoid unnecessary overspending on IT infrastructure.…

    • 1719 Words
    • 6 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Accounting Rate of Return
    • 277 Words
    • 2 Pages

    Accounting Rate of Return

    The accounting rate of return (ARR) is a way of comparing the profits you expect to make from an investment to the amount you need to invest.…

    • 277 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Case Solution Ribbon's an Bows, Inc.
    • 1059 Words
    • 5 Pages

    Case Solution Ribbon's an Bows, Inc.

    3. Rent expense is $1,800 of $600 per month times three months. Paid in cash.…

    • 1059 Words
    • 5 Pages
    Good Essays
    Read More

Related Topics