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Real Estate Investing Return On Investment ROI

Post on: 25 Май, 2015 No Comment

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Other People’s Money — OPM

Real estate investors look for the return on investment when evaluating a potential deal. Here is how the ROI is calculated.

Real Estate Investors like to use Other People’s Money (OPM) in order to get into a deal. OPM can be money from private lenders, hard money lenders, or a bank loan.

The goal is to get into a profitable deal with as little of your own money as possible and to maximize the return on investment of your own out of pocket money.

A Buy, Rehab, and Resell Investment Example

Here is a real example of a deal an investor was in for 3 months in Ball Ground, Georgia. The numbers are typical of the deals beginning investors are getting into in the North Metro Atlanta area.

The investor bought a house with $13,520 of his own money toward down payment and closing costs. The rest of the money needed to fund the deal came from a bank loan. The investor made some minor repairs to the property, rented it out to a lease purchase buyer and sold it after owning it for only 3 months.

His additional expenses during his holding period totaled $1,246 so his total out of pocket expense were $14,496.

At the resale of the house, the investor paid back the bank loan, paid a commission to the real estate agents received all his money back PLUS an additional $3,701 which was his profit.

How to Calculate Return On Investment

The ROI in the above example is calculated by dividing the amount of profit ($3,701) by investors out of pocket money ($14,766):

$3,701 / $14,766 = 0.25 = 25% ROI

The annualized return on investment is 100% (25% divided by 3 months x 12 months).

This is a Great Deal!

The above example is a great deal and is typical of the returns beginning real estate investors are getting on their money in North Metro Atlanta. Often deals can be found where the ROI is much greater.