Otesa Middleton Miles from Bankrate.com shares with us some of the formula that we might use to be success in real estate investment. So let’s see what his formula about :

Cash-on-cash return

Boaz Gilad, investor and author of the book “The Real Estate Millionaire: How to invest in rental markets and make a fortune”, uses this formula to access the investment potential.

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

Cash in : cash the property expected to bring in annually

Cash out : expenses such as mortgage payments, repairs, insurance, etc.

Down payment : total amount invested

Gilad’s advice : Don’t buy if the cash-on-cash return is lower than 3 percent and look for rate above 6 percent.

After-repair value

Doug Crowe, president of Springboard Group use this formula for short-term investment.

Formula :

1. The purchase price should be no more than 65 percent of the after-repair value of the property.
2. (75 percent of your after-repair-value) - (repair expenses) = purchase price

Capitalization rate

Doug Crowe also use another formula called Capitalization rate for long-term investment.

Formula :

Annual rental income(income-expenses, not including mortgage)/ the purchase price = capitalization rate.

PS : High capitalization rate will help the buyers while low capitalization rate will help sellers.

PS: Capitalization rate very depends on the area you invest in.

Source : Bankrate.com

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