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Together, let’s develop a plan that helps you build wealth, retire early, or plan an exit strategy you can live with and on for many years to come.
Investment Strategies
Real estate investing is a big commitment and doing so without a strategy is a Risk with a capital “R”.
Accurate Property Analyses
We’ll help you understand your property’s current value and performance by conducting a comprehensive analysis of where you’ve been…and where you can go from here.
Market Research & Intelligence
In order to purchase the right property, we’ll provide you with all the latest insights and developments within your space.
Multifamily Connections
Buying a property is only the beginning. Learning to manage multifamily property means knowing the right people for every job. We can help!
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How To Measure ROI
There are lots of ways to measure your ROI in multi-family real estate, each with their own pros, cons, and idiosyncrasies. But here, we’ve compiled some of the ones you’ll hear the most.
Cash Flow
You’ll hear a lot of investors brag about cash flow, but in all actuality, it doesn’t tell you all that much.
For example, if we told you one of our investors had a property where cash flowed $10,000 a month we bet you’d be pretty impressed, right?
But what if we told you that the property owner had $1,000,000 tied up in that property to generate that $10,000 a month?
Much less impressive. You could get that kind of return by putting your money into a savings account.
Cash on Cash Return (CoC)
Cash on cash return takes cash flow one step forward; it’s the amount of cash flow you make after expenses divided by how much money you’ve invested in a property.
CoC Return = Annual Cash Flow / Cash Invested
While CoC is an easy number to calculate, it begins to lose meaning if you use creative financing…which is where we come in!
Internal Rate of Return (IRR)
If you ask us, IRR is the single best way to compare different real estate projects in order to see which one will produce the best return. HOwever, it’s pretty complicated to calculate and sometimes even understand.
According to Investopedia, the definition of IRR is this:
The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
Yikes. You’d need a degree in finance and a textbook to unpack what that means. (Again, where we come in!)
Return on Equity (ROE)
Ding, ding, ding! We have a winner! Return on equity in real estate blends the simplicity of cash-on-cash returns with the long-term planning benefits of IRR by taking your overall return on investment given the amount of equity you have in a property into account.
In addition to cash flow, ROE measures the fact that your loan balance is decreasing over time, as well as any appreciation of your property.
With that said, how do you calculate return on equity? (Keeping in mind that “equity” refers to the amount of cash you would put in your pocket if you sold your property today.)
Return on Equity (ROE) = Total Annualized Return / Equity
So we need to know 2 things:
- Equity
- Equity = Total Value – Total Debt
- Total Annualized Return
- Total Annualized Return = Cash Flow + Principal Pay Down + Appreciation
How to Maximize ROE
By measuring your return on equity, we can better decide when to get into an investment property or when to get out and invest in something else. We plan on monitoring your ROE extensively, keeping the following benefits in mind as we watch your investment grow and change.
Paying down the loan: As you continue mortgage payments, you’re paying down the principal loan balance and your equity increases because you owe less in relation to the value.
Appreciation in value: Your property appreciates in value over time. So, while you’re lowering what you owe, you’re also increasing what it’s worth. The difference between the two is growing; equity.
Cash Flow: Every month, you’ll be banking some cash, the money paid in rent that is over the mortgage payment and expenses.
Income tax savings: Depreciation is a huge benefit. Each year you can deduct against the rental income a portion of the value of the structure as depreciation. You didn’t spend anything, but the deduction is just like you had.
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