How do I determine the return on my real estate investment and how do I calculate it?

To determine the return on your real estate investment, you need to calculate the net operating income (NOI) and the capitalization rate (cap rate).

1. Net Operating Income (NOI):

The NOI is the income generated by your property minus its operating expenses. The formula for calculating the NOI is:

NOI = Gross Rental Income - Vacancy Costs - Operating Expenses

Gross Rental Income includes all the rent collected from your property, while Vacancy Costs include any lost rental income due to unoccupied units. Operating expenses include all the costs associated with operating the property, such as property taxes, insurance, maintenance, utilities, and property management fees.

2. Capitalization Rate (Cap Rate):

The Cap Rate is the rate of return on your real estate investment. It is calculated by dividing the NOI by the value of the property. The formula for calculating the Cap Rate is:

Cap Rate = NOI / Property Value

To calculate your return on investment (ROI), multiply the Cap Rate by 100. The formula for calculating the ROI is:

ROI = Cap Rate x 100

For example, if your property generates $50,000 in NOI and is valued at $500,000, the Cap Rate would be 10% ($50,000 / $500,000). If you multiply the Cap Rate by 100, your ROI would be 10%.

It's essential to keep in mind that the Cap Rate is only one way of measuring the return on your investment. You should also consider other factors, such as the potential for appreciation, financing costs, and tax implications, before making any investment decisions.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.