RETURN ON EQUITY

How Do I Measure My Investment Property’s Cash on Equity Return?

Would you put your money in the bank for a low interest rate? Probably not. But unfortunately, many investors who have owned their investment properties over time have exhausted depreciation (a major tax benefit) and are earning a disappointing annual return on their equity. The Return (or growth) on Investment (ROI) has done well over the years. However, the Return on Equity (ROE), that is your income from it (if not analyzed by a tax or financial planner) could be unknowingly poor.

Here is a simplified example of computing your ROE:

1) Annual Gross Income
Monthly rent times 12 = $____________

2) Annual Expenses
Include Monthly Mortgage payments times 12, then add Insurance, Property Taxes, Maintenance, Utilities, and all other Expenses spent annually. $____________

3) Annual Net Income $____________
Subtract 2 (Expenses) from 1 (Gross Income)

4) Estimated Net Equity of Your Investment Property
(We will assist you with this) $____________

5) To arrive to your Property’s Approximate Cash on Equity Return, take 3 (Net Income) and divide by 4 (Estimate Net Equity).

This is your Investment Property’s Estimated Cash on Equity Annualized Rate of Return ____________%