Investment formula

How do we calculate the different ROIs?

Our ROI Formula

There does not seem to be an industry standard for calculating investment returns based on the properties’ income. So for the sake of clarity, go to this page where we show you the different ROIs being described below – ROI Calculations here .

Also when buying property it’s important you understand you have 3 distinct ROIs.

1. Net CAP rate %: this is the net rental income from the property after deductions for taxes, insurance, maintenance etc divided by the purchase price. In otherwords you’ve paid cash for the property and this is the % return on your capital.

2. Cash ROI %: often called Cash on Cash means you’ve used a loan to buy the property  and leverage your returns. To calculate Cash ROI, divide your net rental income (after deductions for PITI and management) by your deposit (investment capital).

3. IRR – Internal Rate of Return %:  This is the true return on your invested capital as it also takes account of the principal reductions you’re paying the bank each month. Therefore calculate IRR as your net income + principal payments divided by your deposit.