Many real estate investors are involved in multiple properties and use leverage in their purchases. When deciding on the viability of an investment, one of the measures used is the expected Return on Equity in the fist year.
If two properties are similar, the one which will produce the best first year return may be the better short term investment.
Difficulty: Easy
Time Required: 5 minutes
Here's How:
- Determine the Cash Flow After Taxes. In this case, we'll assume a CFAT of $11,000.
- What is the cash invested as down payment or other into acquiring the property? We'll use $170,000 in this example.
- Divide the CFAT by the cash invested:
$11,000 / $170,000 = .065 or 6.5% Return on Equity
Tips:
What You Need:
- Calculator
