How To Do a Real Estate Investment Profit Calculation
This calculation is the one that real estate investors hope to utilize. It is used when a property is sold for more than the purchase price. know it so that you can help clients to determine possible returns.
Time Required: 5 minutes
- Subtract the purchase price from the net from the sale of the property. Example: Property is sold for $250,000 after commissions and expenses to close. It was originally purchased for $210,000.$250,000 -$210,000 = $40,000
- Divide the profit amount by the purchase price.$40,000 ÷ $210,000 = 0.19 or 19% Profit
What You Need:
- Normal calculator
More on Profits in Real Estate Investment
Let me link you to some other articles I've written which point out the great benefits and profit potential related to real estate investing. Consider it a quick course on Real Estate Profits 101:
As is the case with a stock that pays dividends, a properly selected and managed rental property can provide a steady income stream in the form of rental payments. Rental property returns typically exceed dividend yields.
Most of the 1990's, The Standard & Poors Index posted earning yields of 5% to 6% on average. At the same time, the dividend yields of the S & P were only around 2% or less. Since dividend-paying stocks tend to be much less volatile, the gains on the appreciation side would not normally be a significant factor.
There is no doubt that properly planned and executed real estate leverage strategies will result in profits for investors. The trick is to be sure that your behaviors are all the right ones, and the research is sound.
These risk reduction strategies will help the real estate investor to minimize the chances of a losing investment.
Cash flow is a function of a great many inputs, and any or several of them can change and damage or improve cash flow. Some are market and economy influenced. If a major local employer closes or moves, the demand for rental property can plummet overnight. This is something you can't control, but hopefully avoid by doing your due diligence about the health and plans of local employers. If they are healthy and profitable with a long lease recently renewed, you're probably in good shape.
When you purchase a company's stock certificates, you're looking for appreciation in the stock value, and perhaps dividend income if the company pays it. With bonds, you're looking for income yield on the interest rate paid by the bonds. With a real estate investments, there are more ways in which to realize a superior return on investment. Learn the ways in which your real estate investment can increase in value, as well as provide good cash flow.
A new investor was confused by what is actually included in "operating expenses" for a rental property. Obviously, as with any operating business, we will have income and expenses. One must be careful to understand what is normally included in operating expenses for a rental property.
So, just what is real estate wholesaling? You become the middle person who matches up a distressed or undervalued property with a happy buyer. Who is the buyer? In the vast majority of cases, it will either be a fix & flip investor or a long-term rental investor. What value do you deliver, as that's required if you're going to profit in this business? You bring your time and skills in locating undervalued properties, controlling or buying them, and selling them to your buyers who wouldn't have known about them otherwise.
If you're new to or thinking about real estate investing, there's a lot of great information in those articles.