I have a 4-plex with a business partner and we want to bring in another joint venture partner to give us some capital to invest on more properties. My question is what is the formula to figure out how to calculate the ROI on th eunits to present to the potential investor?
return on investment question
- Thread starter trevorm
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QUOTE (trevorm @ Dec 10 2009, 08:28 PM) I have a 4-plex with a business partner and we want to bring in another joint venture partner to give us some capital to invest on more properties. My question is what is the formula to figure out how to calculate the ROI on th eunits to present to the potential investor?
cash-out - your share = investor cash-out
(investor cash-out - investor cash-in) / investor cash-in = ROI
your share = whatever you think is sellable to investor.
Related post: 50/50 – is this fair ?
http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html
cash-out - your share = investor cash-out
(investor cash-out - investor cash-in) / investor cash-in = ROI
your share = whatever you think is sellable to investor.
Related post: 50/50 – is this fair ?
http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html
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Two suggested methods - choose the right one depending on your strategy:
1. ROI = net monthly income* x 12 / initial financial contribution (downpayment etc.)
OR
2. ROI = (net monthly income x 12 + monthly principle reduction** x 12 + property purchase price x annual expected appreciation %) / initial financial contribution
WHERE:
* net monthly income = cash flow after financing
** monthly principle reduction = monthly mortgage payment minus monthly mortgage interest
*** one time RE fees can be included but the longer you hold the less ROI is affected by it.
**** sorry but your question is a bit too basic for a person trying to attract other investors.
1. ROI = net monthly income* x 12 / initial financial contribution (downpayment etc.)
OR
2. ROI = (net monthly income x 12 + monthly principle reduction** x 12 + property purchase price x annual expected appreciation %) / initial financial contribution
WHERE:
* net monthly income = cash flow after financing
** monthly principle reduction = monthly mortgage payment minus monthly mortgage interest
*** one time RE fees can be included but the longer you hold the less ROI is affected by it.
**** sorry but your question is a bit too basic for a person trying to attract other investors.
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- Sep 14, 2008
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- 392
QUOTE (investmart @ Dec 24 2009, 12:48 AM) Two suggested methods - choose the right one depending on your strategy:
2. ROI = (net monthly income x 12 + monthly principle reduction** x 12 + property purchase price x annual expected appreciation %) / initial financial contribution
WHERE:
* net monthly income = cash flow after financing
** monthly principle reduction = monthly mortgage payment minus monthly mortgage interest
*** one time RE fees can be included but the longer you hold the less ROI is affected by it.
**** sorry but your question is a bit too basic for a person trying to attract other investors.
This is exactly what I`m doing, except backwards in that after doing a conservative appreciation estimate (err on the side of caution) I set a fixed ROI based on something the investor will be very happy with, then run through the calculation to find out what I`m going to make him/her pay. This way, you may be able to keep reworking the numbers to get all your initial investment out (providing you with endless equity) or even getting MORE money out than you put in.
2. ROI = (net monthly income x 12 + monthly principle reduction** x 12 + property purchase price x annual expected appreciation %) / initial financial contribution
WHERE:
* net monthly income = cash flow after financing
** monthly principle reduction = monthly mortgage payment minus monthly mortgage interest
*** one time RE fees can be included but the longer you hold the less ROI is affected by it.
**** sorry but your question is a bit too basic for a person trying to attract other investors.
This is exactly what I`m doing, except backwards in that after doing a conservative appreciation estimate (err on the side of caution) I set a fixed ROI based on something the investor will be very happy with, then run through the calculation to find out what I`m going to make him/her pay. This way, you may be able to keep reworking the numbers to get all your initial investment out (providing you with endless equity) or even getting MORE money out than you put in.