9/6/23
The Realm of ROI
Reading, skimming, questioning, and then more reading. The process of analyzing is a tedious yet informative task. This past week, I've been reviewing articles on the topic of "Return on Investment", commonly known as ROI, to understand the logistics of real estate. Being fairly simple, ROI is simply known as the final profit of a real estate purchase after removing all the costs of investment (the raw profit of the purchase).
Additionally, there are very simple calculations to determine the ROI:
CASH SALES + RESALES: ROI = (sale price of investment – cost of investment) / cost of investment
RENTALS: ROI = (annual operating costs – annual rental income) / mortgage value
ROI can be useful for many cases: Cash sales and resales, REITs (a way of investing in real estate by buying a share of the real estate investment trust), and rentals. The equation I wrote/learned about merely applies to cash sales and resales, but for rentals and REITs, there are other processes.
For rentals, a thorough calculation of annual operating expenses and annual rental income must be performed. These may include device like insurance, property taxes, HOA dues, and maintenance costs.
On the other hand, for REITs, one must buy the shares in earning dividends. (almost like owning stocks)
What Lies Ahead
I still have a whole journey ahead of me, so some concepts I should work on next week are capitalization rate, cash-on-cash return, and internal rate of return. These are other methods and metrics to assess the final profit of purchases. Since many purchases include a combination of these metrics, it would be beneficial and helpful to coherently educate myself about these topics to get a deeper understanding of the basics.
As ISM class continues, I should aim to learn adequate principles of interviewing for the future interviews that will eventually arrive. Practicing my interview skills can assist me with my Business Symposium project and my actual interviews with the upcoming mentors I would like to have.
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