For the majority of real estate entrepreneurs, determining the value of a real estate asset is key to getting positive returns. In the real estate industry, ROI or return-of-investment is used as a method of calculation to help these entrepreneurs choose better properties to fix and flip.
This method is typically used to try and predict how a real estate asset will perform, by comparing the cost of the asset versus the potential return. This version of the ROI estimation is the most basic, and some variances of the formula exist which can measure the length of the investment and other factors.
Another purpose of the ROI formula in real estate is to estimate which is the best-performing between a group of properties that the entrepreneur is considering. By narrowing the options down to the property with the best potential to sell for a profit, the chances of getting a good return becomes higher. When using a loan to fund this type of investment, it is important for real estate entrepreneurs to learn this method before getting started.
Calculating ROI
ROI is typically shown as a percentage, with a calculation that works in the following ways:
ROI = Net Profit / Total Investment * 100
Real estate entrepreneurs will use this formula to determine the potential profits on a property by comparing the cost of the asset to the potential return. Part of these costs include certain payments associated with a property that needs fixing and flipping, such as insurance and others. To save time with this process, try using the New Silver Loan Calculator. Real estate entrepreneurs can input their information, and receive a free ROI calculation by email.
ROI’s and Property Flipping
Now that the basics have been covered, it becomes possible to apply the formula to different aspects of real estate, such as fixing and flipping or property rehabbing. By getting more familiar with the numbers involved in making an investment, real estate entrepreneurs can prevent themselves from choosing properties with low-profit potential or overbidding.
These numbers are also used when comparing two or more potential investment properties in order to maximize any return. Part of this process includes getting an idea of what the costs of rehabbing the property will be like. These costs include not only the price of the original property and repairs but also any insurance needed on the property and transfer or solicitor fees. The best way to determine these types of costs is to do some research and contact service providers for their general pricing.
ROI and Hard Money Loans: What You Should Know
Real estate entrepreneurs who use loans to fund or rehab their latest fix and flip properties will find many benefits of teaming up with a hard money lender as opposed to other loan types. Hard money lenders are able to supply loans faster than other loan providers, offer more flexible terms and have easier, streamlined application processes. Private money or hard money loans are commonly utilized by real estate entrepreneurs who do not have the funds to start a rehab project by themselves.
The key to any hard money-funded real estate project is to resell the flipped property as fast as possible, in order to minimize the cost of maintaining the property while it’s on the market. A faster flip equals better potential for a healthy ROI.
Most hard money lenders (including New Silver) will arrange an appraisal or BPO of the investment property prior to approving any loans. These appraisals can be greatly beneficial to determining the true value of the property for the real estate entrepreneur.
New Silver And You
Are you a real estate entrepreneur looking to close on a property? By working with New Silver, you can benefit from having our skilled real estate professionals do an appraisal on your property. Approved New Silver lenders can get loan terms as long as 24 months, receive our list of tried and true real estate services and much more.
Real estate entrepreneurs seeking to rehab a property should use the return-of-investment formula to maximize potential net profits when reselling. By getting comfortable with the numbers, these entrepreneurs can rest assured that they are getting the best deal and that their return will be positive.
If you’re intending to fix and flip a property, speak to New Silver today for an appraisal and to discover how we can assist with your next real estate undertaking.