Invest to financial freedom - Formulas for investment success

June 15, 2006 · Filed Under Learn How to Invest 
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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 :

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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.

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

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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

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

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After-repair value

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

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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

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Capitalization rate

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

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Formula :

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

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

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

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Source : Bankrate.com


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    Comments

    2 Responses to “Invest to financial freedom - Formulas for investment success”

    1. traineeinvestor on July 10th, 2006 5:05 pm

      The cash on cash rate formula is not very good as it will depend on the terms of the mortgage (an interest only mortgage will give you a much better cash on cash return than a short term P+I mortgage) and how high you gear (a small deposit will inflate the number produced by the formula). I prefer the cap rate approach.

    2. Johnbeck Seminar on March 28th, 2008 3:45 pm

      Wow, she’s a model, real estate wiz, and workout video queen. Is there anything this chick can’t do???

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