A Quick Word on Investing and ROI
Posted: April 25, 2018 by Step Beyond Media
For any real estate beginners out there, return on investment (ROI) is one of the things that make owning a home so enticing. Before you dive right into house hunting, however, you’ll want to do your research. Here’s a crash course to get you started on ROI knowledge.
Simply put, ROI is the percentage of money you get back from an investment. That could be anything from a house to land to a business to a product. You can calculate ROI by finding the difference of the gain you will make off an asset and the cost of that asset and then dividing your answer by the cost. As a simplified math equation, it would look like this:
Roi =(gain -cost) / (cost)
Seem simple enough, right? Without making things too complicated, you have to keep in mind that property is a long term venture. Throughout your time in a home, you will likely end up making repairs and creating some remodeling projects, which will increase your cost, but also influence your return.
Investigate the area and market you are about to invest in. No two places are exactly the same, meaning your risks and benefits could vary drastically from location to location. Dig a bit deeper to find the reason behind things such as low purchase prices, high rents, the local community vibes, and the estimated change in house listing. Obviously, no one will know for certain what the market will look like when you’re ready to sell twenty years from now, but doing the research now will at least help keep you informed.
Include an analysis on yourself. I’ve known several people who have invested in a fixer-upper with ambitious intentions, only to find themselves stuck with the same repairs needed as when they bought the house ten years ago. Whatever your motives are behind going in on a real estate deal, examine your motives and check if they align to your strengths. If you find some discrepancies, review your plan.
Of course, there are factors such as mortgages and refinancing that will impact your return. In the same vein as everything else in real estate, spend the time and do your research before making any big decisions.