New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Auto CDs &
Retirement Checking &
Taxes Personal

Formulas for investment success

In today's market, real estate investors have to carefully analyze expenses and project revenues to make sure the numbers work in their favor before making a deal. Bankrate spoke to two seasoned investors who shared their formulas for real estate investment success.

- advertisement -

Cash-on-cash return
Boaz Gilad, a New York-based investor and author of the new book "The Real Estate Millionaire: How to Invest in Rental Markets and Make a Fortune," uses a cash-on-cash-return formula to assess the investment potential of a particular property. Here's how it works:

Cash-on-cash return

Shortcut formula: (Cash in - cash out) / down payment = cash-on-cash return.

Explanation: (Cash the property is expected to bring in annually minus annual expenses such as mortgage payments, repairs, insurance, etc.) divided by the total amount invested (i.e., down payment plus closing costs) equals the cash-on-cash return.

Example: For a $250,000 investment, you put down $25,000. You estimate that after you pay the mortgage, taxes, insurance, the lawn guy, the plumber and the water bill, you'll clear $2,000 annually.

$2,000/$25,000 = 8 percent cash-on-cash return

Gilad's advice: Don't buy if the cash-on-cash return is below 3 percent. Strive for a return above 6 percent.

After-repair value
Doug Crowe, president of the Chicago-based Springboard Group, which teaches real estate investing, offers two formulas for prospective investors. For short-term investors who plan to buy, fix up and sell their properties right away, he uses the after-repair-value formula, or ARV.

After-repair-value formula

Formula: The purchase price should be no more than 65 percent of the after-repair value of the property.

Alternate calculation method: 75 percent of your after-repair value - repair expenses = purchase price.

Next: The capitalization-rate formula for long-term investors.
Page | 1 | 2 |
Investment property deals in short supply
The case for rental revival
Condo-hotels: Hot stakes or heartbreaks?
How to lower your property taxes
Forged signature puts kibosh on home sale
Will mortgage assumption solve crisis?

Compare today's rates
30 yr fixed mtg 3.84%
15 yr fixed mtg 2.94%
5/1 ARM 3.31%
Rates may include points
  Calculate your monthly payment  
  How much house can you afford?  
  Fixed or adjustable rate: Which is right for you?  
Rev up your portfolio
with these tips and tricks.
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here. ®, Copyright © 2015 Bankrate, Inc., All Rights Reserved, Terms of Use.