calculating return on investment for IP I'm interested to know if my calculation of my return on investment is correct I purchase a $600,000 investment property inc stamp duty, of which I have a $160,000 deposit and I borrow the remainder, $440,000. My loan is for 6% pa interest only = $26,400 repayments required pa. The rent is $300 per week after agents commission = $15,600 pa received, leaving a shortfall of $10,800 Does that mean my return on investment is $10,800 (shortfall in repayments)/ ($160,000 + $26,400 (interest charged pa) % = 5.79% pa
Your ROI is negative because it is costing you money to hold ... you are not actually making a return (of income) on your investment.
Sim is correct but I think you're better off referring to the gross rental yield here, which at $300x52/$600K x100=2.6% is pretty lousy! I use the term ROI to refer to a % figure, based on returns over a time period. For example, a 25% ROI means an investment of $100K will return $25K in one year. A 10% ROI means an investment of $100K will return $10K per year and so on. When adding value to an IP, for example, those of us who like crunching the numbers can calculate the ROI within a particular time period. Hope this helps.
