This is the second and concluding part of this special edition of my Real Estate Investment Chronicles newsletter.
Last week, I discussed three concepts – Your Income, Your Expenditure and Your Cash Flow. Click here to read that issue.
This week, I begin by sounding a note of warning, that nothing in this 2 part series should be considered professional or consulting advice by the reader.
What I offer here is simply experience based information for your possible education and enlightenment.
You are there advised to get in touch with competent professionals or experts with proven proficiency in this area, to help you make use of what is offered here.
Now, on to the discussion about ROI
At the risk of stating the obvious, calculation of ROI is a process that can be either simple or complicated. Which it ends up being will often depend on a number of variables
What is key to note however is that when accurately computed, ROI can be a valuable indicator of the degree of profitability of a Real Estate Investment activity – be it sale or rental of a property etc.
As I have stated in past articles, even during an economic recession, real Estate investing can still be done profitably – if one knows where to look and what to do, at the right time!
Calculating ROI: A Common Method
Some experts note that ROI can be calculated in different ways, with varying complexity. But what I describe below is a method fairly popularly used by most real estate professionals.
It’s easy to understand and apply. And as I’ve noted at the end of this piece, you can always connect with a competent expert to help you improve your understanding.
It goes without saying, that you do not want to try calculating ROI yourself for real life investment purposes, unless you have the training and experience to do so correctly.
To give you an example of how to calculate ROI, first of all, we’ll set up a scenario.
Let’s say a duplex was purchased by you for N150m
Then you spent about N30m fixing it up by way of repairs and refurbishment or any other enhancements.
At this point, total costs incurred on the investment comes to N150 + N30m = N180m
Let’s say the property valuation is now done and is put at N250m
This implies that your equity in the duplex property now comes to:
N70m i.e. N250m – N180m
To compute your ROI, you would then simply divide your equity investment by the total sum of ALL expenses you incur on the property in the process or purchasing or repairing/refurbishing or enhancing it towards resale.
So your ROI in this duplex property would be .38% i.e. N70m divided by N180m
NB: Remember that I began by saying this is one of the methods that can be used – and I have made it simplistic by leaving out other possible variables that, in real life, may have to be factored in. But I’ve chosen it because it’s common and straight forward. You can find out more – get in touch with me if you need my help.
Potential Problems to Watch Out For…
When computing ROI, you may need to watch for complications that can occur for instance when a property gets refinanced – with the implication that interest charges or a loan fee arising from such a development would increase expenses resulting in a reduction in the ROI.
What’s more, there could also be unexpected developments that result in increased expenses on maintenance of the property in question, and possibly utility payments etc – in a case where the owner is the one who has to cover such expense.
These kinds of not-too-straight-forward variables will need to be carefully tracked and accounted for, in order to ensure that the ROI computed is as close to the reality as possible. For this reason, the services of a reliable and competent professional will be best for you to secure.
However, what you would have learnt through self-education efforts, such as reading educational pieces like this, and others like it, here on LanreKarim.com and elsewhere, will better equip you to assess him/her and get value for what you agree to pay.
Click here to contact me if you need help making use of the ideas I’ve shared in this latest issue of my Real Estate Investment Chronicles (REIC) newsletter.
Visit my blog – click here – to read more useful articles to educate yourself at www.lanrekarim.com/blog
To get Personalized Real Estate Investment Coaching from me, including practical tips and insights to help you safely navigate your way to success, while avoiding common mistakes click here to request details.
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TIP: If you need help making use of the ideas I’ve offered above, or wish to learn more, contact me using the form on this page – click. For more useful articles, true stories, case studies, special reports and white papers on real Estate Investment, sign up to my Real Estate Investment Chronicles™ mailing list.
Lanre Karim – Nigeria’s Real Estate Investment Advocate (REIA) ™ – is the author of the Real Estate Investment Chronicles (REIC) ™: a thought-leading online publication that features tried and tested Real Estate Investment strategies– and solutions – for everyday persons.
Over a decade of hard won experience backed by extensive client testimonies and sales based referrals by satisfied clients, make Lanre Karim’s LREO (Larry Real Estate Organization) a preferred provider – in partnership with Pwanhomes Ltd – of cheap, affordable and dry landed properties, at Ibeju-Lekki, Eleko, and Ahoyaya area of Lagos, Nigeria.
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History has shown that the resulting transformation in the thinking of persons exposed to the above, equips them to invest wisely in landed property, for profit. Many of our clients (based within/outside Nigeria) are today proud owners of serviced plots of land at Paradise Gardens, Oakwood Gardens, and Phase 1 & 2 etc.
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Lanre Karim has been advocating self-education for investment in real estate as a strategy for adoption for years. The current difficult socioeconomic times we’re in make Lanre’s message about the multidimensional potential benefits of real estate investment more compelling than ever before.
This is why he has launched www.lanrekarim.com to offer true-story-based information and education for persons in need of expert guidance towards investing successfully in real estate. Access to both contents will be free for the most part.
So you owe yourself the duty to avail yourself of the opportunity to at least get better informed and educated about your intended investment. Get started arming yourself with valuable information and education by tapping from Lanre’s well of real estate wisdom via his Real Estate Investment Chronicles (REIC) ™ – click here to sign up now.