Calculation formula of return on investment

Generally speaking, shops can recover their investment in about 8 years, and then the annual rental return rate can generally reach 8%, and good commercial shops can reach more than 16%. Of course, different shops have different situations. There are two formulas that can be used to calculate.

The first method is mainly suitable for one-time investment and does not require loans. The calculation formula is: (monthly rent after tax-monthly property management fee) × 12 = annual rental income. Annual rental income ÷ total price of shops purchased = annual return on investment. On the contrary, the total purchase price of shops ÷ annual rental income = investment payback period.

The second method is mainly applicable to the income calculation of loan investment. The calculation formula is: (monthly after-tax rent-monthly mortgage interest-monthly property fee) × 12 = annual rental income. (Down payment+mortgage loan) Annual rental income = years of return on investment. On the other hand, investing with annual rental income ÷ (down payment+mortgage loan) = annual investment return rate is of course to make money. Can you make money? How much money can you earn? We can't just count income here, but also fully consider various expenses.

Rate of return algorithm

The upsurge of investing in shops is heating up sharply, so how to calculate the return on investment of shops? According to the staff, there are four algorithms for the return on investment of shops:

Rent return method

Formula: (after-tax monthly rent-monthly mortgage payment) × 12/ (down payment+forward mortgage payment). Advantages: Considering the rent, price and the main investment in the early stage, it is more applicable than the rental return analysis method, and can estimate the length of the capital recovery period.

Shortcomings: Time effects of other inputs and funds in the early stage are not considered. Can not solve the cash analysis problem of multiple sets of investments. And because of its inherent one-sidedness, it can not be used as an ideal investment analysis tool.

Rate of return analysis

Formula: (monthly after-tax rent-monthly property management fee) × 12/ total purchase price. The greater the ratio calculated in this way, the more worthwhile the investment.

Advantages: Considering the rent, house price and their relative relationship, it is a simple method to choose "excellent real estate".

Insufficient: Not considering all the inputs and outputs, not considering the time cost of funds, so it cannot be used as a comprehensive basis for investment analysis. Cannot provide specific analysis for mortgage payment.

internal rate of return

The formula of real estate investment is: accumulated total income/accumulated total investment = monthly rent × accumulated rent months during the investment period/(mortgage down payment+insurance premium+deed tax+overhaul fund+other investments such as furniture+accumulated mortgage payment+accumulated property management fee) = internal rate of return.

The above formula takes mortgage as an example; Do not consider interest payment and agency expenses; Accumulated income and investment are considered during the investment period.

Advantages: Internal rate of return method takes into account all factors such as investment and income and cash flow during the investment period. Can be used in combination with the rental rate of return. The internal rate of return can be understood as deposit in banks, but the interest rate of banks in China is calculated according to simple interest, while the internal rate of return is calculated according to compound interest.

Deficiency: judging the investment value of real estate by calculating the internal rate of return is based on today's data to infer the future, and the rise and fall of future rent is unknown.

Simple evaluation method

The basic formula is: if the annual income of real estate × 15 = the purchase price of real estate, it is considered that the real estate is worth the money. This is a simple method for an international professional financial management company to evaluate the investment value of real estate.

Any real estate investment, investors hope to have a reasonable return, even an ideal return, as the saying goes: there is no loss-making business. Investors should judge whether their investment is valuable, usually mainly by the return on investment of real estate. So, how to calculate the return on investment and how to judge the significance of the return on investment?