Millions of people have millions of different concepts about how to calculate return on investment for rental property. Many have unsure, even potentially dangerous ideas of what a good return on investment for rental property really is, and how the return on investment for rental property big or small can be known by any investor before the investment is made.
Millions mistake calculating real estate investment criteria and suffer because millions calculated the return on investment just as the initial net cash flow. Adiel Gorel, Owner of International Capital Group, who has invested in 100s of homes personally and helped 1000s of regular folk enjoy what he calls in his book of the same title Remote Retirement Riches, says there is a safer way to calculate any real estate property’s true return on investment.
“How to calculate return on investment for rental property is simple if the focus remains on the IRR, Internal Rate of Return. Here’s the part where millions mistake initial net cash flow for ROI, but an investor can only look at the whole picture when they can see the entire picture.” Says Adiel Gorel, owner of International Capital Group.
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But here’s the skinny on how to calculate return on investment for rental property. How my money must be put down on the purchase of the rental home is a known factor. How much the closing costs will be on this rental home is also a known factor. All if not most of the regular expenses are known factors. And then an investor will hold the rental home for the long term, as Adiel advises.
As a long-term holder, it is largely known the rents that come in each month over the lifespan of the loan. Many people are hesitant to jump into the 2022 real estate market but all signs say this is not a bubble and 2022 could just be the perfect time for the savvy investor with the right mindset.
The amount of the mortgage payments paid during that holding time, the repairs that take place, and all the expenses are known factors. –and then it sells. Now all the numbers or factors to focus on are known.
How much it sold for, the commission costs and the closing costs are all known after the sale. Plug those into an Excel sheet that actually has a function called XIRR, where it calculates the internal rate of return, exactly. That’s the true, comprehensive measure of how to calculate return on investment for rental property. In this way, anyone in the know, from the first-time investor to the seasoned investor can easily see what is a good return on investment for rental property, based on properties others held and sold, and make the decision to invest wisely avoiding the most common mistake millions make in real estate investing.
“New single-family homes in good areas sometimes seem like a boring investment, that’s a sign of a solid foundational investment. Great things are only built on solid foundations,” says Adiel Gorel the owner of International Capital Group.
Especially when millions mistake calculating return on investment for rental property, the consistency of what is known when renting a new single-family home in good neighborhoods, makes possible a solid way to determine, what is a good return on investment for rental property.
Real estate investments can add diversification to your portfolio — and getting into the market isn’t as difficult as many think. Consistency gives an investor the peace of mind to make all of their other decisions. The single-family home with a fixed 30-year loan, in good neighborhoods, is an investment that can provide consistency. At ICG, Gorel has rarely seen the IRR lower than 15% on any single-family homes that they’ve helped investors find.
Here’s a focusing question: Why would anybody willingly choose to buy not-as-good properties, in not as good areas, with not as solid of an economy as possible? It seems unfathomable. Yet million miscalculate real estate opportunities because they are simply focusing on the wrong numbers when determining how to calculate return on investment for rental property.
People who buy run-down properties in run-down locations, in run-down conditions, in bad areas in bad markets are doing it because they are merely calculating short-term net cash flow and quickly are left wondering what is a good return on investment for rental property of that caliber. The results are very predictable: worse tenants, worse rents, more evictions, and very likely more repairs. So much is unknown about the location, such as if it’s going down or up in value over time. Even the promised net cash flow ends up deteriorating in a bad area.
“When you buy nice properties, things go smoothly. That’s the principle behind Remote Control Retirement Riches. Focus on, internal rate of return, rather than immediate cash flow that is the true measure of what is a good return on investment for rental property.” Says Adiel Gorel
Do not get fooled by the mistake of buying real estate property because it yields a net cash flow, right away. That can quickly turn a paper dream into ash. Focus on newer properties, single-family homes in the sunbelt states, with a fixed 30-year mortgage and predictable rents. Boring is steady and steady is the foundation of Remote Control, Retirement Riches the same name as Adiel Gorel’s book.
Visit ICGRE.com/guide to find out the best places to invest in real estate in 2022. Get details about how to calculate return on investment for rental property and the best places to invest in 2022. Many people are surprised by how much clearer their decision is made by the answer.
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Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Guardian Talks journalist was involved in the writing and production of this article.