How to calculate the return on a real estate investment?

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If in real estate business you are doing purchasing of lands and then selling them after the cost of the land increases or you are constructing a house, shopping complex and giving it for rent, you need to calculate the return of your investment. And after calculating the return you can decide about what are all the steps you need to take to improve your income.

First start preparing the list of all the income and expenditure of your money. You must manipulate the gross annual income on your property and also the cost like clearance of loans on it and taxes.

Some of the steps of calculating the return are mentioned below.

Annual Percentage Yield: now we will discuss the method of calculating this. For this, you first need to calculate the total returns your returns. This includes terms like

  • The profit which you have expected to get at the time of investment.
  • The time in which the returns will come.

Sometimes you may not get the returns in the time you expected and you should reduce the probability of the return in time. Be perfect in determining the time till which you will b e having these returns. While expecting the returns, be sure you will include all the individual returns that you expected from the investment.

The next step includes the costs you will face in the real estate investment.

Prepare a list of the things which come under this category. Be sure that you will include all the hidden costs included. The list will include things like

  • The maintenance cost of your property.
  • Amount of taxes and any fee you paid for the investment.
  • The primary straight costs associated with the investment.
  • The amount of your valuable time devoted for the investment.

Calculating all these steps should be done by giving negative sign to the costs and positive sign to the return. Upon addition, you will get the net return for your investment.  Giving as an example, allot the positive sign for your returns like $40,000 and negative sign for cost like -$2,000.

Once you are finished with it, you will come to the final stage of calculating of annual percentage yield. This can be done by using just small formulae.

Annual percentage yield = (Final return/Initial investment) ^ (365/days) – 1

This is nothing but total return from the during an year or one month or whatever may be the time period divided by the initial investment and raising it to the 365 divided by the number of days the investment took for completing. This resulted value should be subtracted by 1 to get the annual percentage yield.  Once you are done with all these things, you can easily calculate the return on your real estate investment and can improve it.

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