The primary goal of a real estate investment is to generate a return. In order to determine if the goal is being met, you need to analyze the ROI of your investment property. An accurate analysis can help you optimize your revenue and change your investment strategies if necessary. However, from what we have seen, there are a lot of factors involved in calculating the ROI on a property, which makes it challenging for owners to analyze the returns efficiently.
Here’s some information that can help you analyze the return on investment for your Columbus & Phenix City properties.
Factors To Consider While Analyzing ROI Of Your Columbus & Phenix City Property
Here are some of the factors you need to consider for an accurate estimation of ROI.
-
- Property details like the number of bedrooms, whether the unit is newly constructed or a fixer-upper, and the availability of amenities
- Loan details like mortgage principal & interest or the amortization period
- Estimation of rental income and expenses such as property taxes, maintenance, and HOA fees
- Home insurance and property management costs
- The future selling price of the property
Different Ways Of Calculate Your ROI Of Your Columbus & Phenix City Property
Analyzing the ROI is critical for every real estate investment. It helps you determine if your investment is currently profitable and also reveals its future financial potential. Let’s look at the different ways of analyzing ROI for your investment unit.
- The Formula
Although there are several methods of analyzing ROI, the formula is the most commonly used. It is simple and provides a fairly accurate estimation of your returns. You can use either of the following formulae:
ROI= Net Income/ Cost of Investment
Or
ROI= Investment Gains/ Investment Base
- The Cost Method
The cost method is preferred as it generally requires very little paperwork. You can calculate ROI with this method by dividing the equity of the unit by the property costs like purchase, renovations, or repairs.
- The Out-of-Pocket Method
Investors generally prefer the out-of-pocket method because of better ROI. The general rule is that the more money you put from external funds instead of your own savings, the higher your ROI. This method is based on financed transactions. Meaning, you only calculate the down payment plus the renovation charges, as loans cover the cost of the purchase.
- ROI Calculators
Even though you can use the methods discussed above to calculate the ROI, we recommend that you choose more reliable options like accountants, property managers, or software like VisualizeROI.
- Analyzing The ROI For Cash Transactions Vs. Financed Transactions
Calculating the ROI for cash transactions is less complicated. You will have to estimate your annual return, calculate your income, deduct the expenses, and divide that by the amount you paid in cash to purchase the unit.
However, when calculating ROI for financed transactions, you must consider the mortgage payment, as you will pay a certain amount every month. Your total cost must also include the down payment charges, closing fees, and other costs like renovations.
What is A Good ROI?
An ROI between 8%-10% is considered average. Anything above 12% is excellent and can be a major boost to your real estate portfolio. To get an accurate idea of how much the ROI can be for your Columbus property, we recommend hiring an experienced property manager. They can give you effective advice about how you can earn a better ROI from your investment as well.
Consult a trusted Columbus management company like Bickerstaff Parham Property Management. We have been in the rental business for over 20 years and have helped our clients consistently get better ROI on their multiple property investments.
For more information on analyzing and enhancing your ROI, talk to one of our expert agents today!
