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Investors Terms:
1) GRM(Gross Rent Multiplier) Sales Price divided by/ Annual Gross Rents
2) Cap (Capitalization Rate). Return based on a cash purchase. Net
Income/Sales Price
3) ROI or C/C: Return on Investment or Cash-on-Cash return. Net Income
(after paying all expenses including mortgage) divided by Initial
Investment (Down payment + closing costs).
4) IRR: (Internal Rate of Return). Overall return on Investment over the
period of ownership. Figures out the overall profit, including all
annual cashflow (positive or negative) and after sales profits. This
method is the best way to figure your return, but it is the most difficult
to calculate because you must plug in many assumption which after
extremely hard to predict, if not impossible.
1) GRM(Gross Rent Multiplier) Sales Price divided by/ Annual Gross Rents
2) Cap (Capitalization Rate). Return based on a cash purchase. Net
Income/Sales Price
3) ROI or C/C: Return on Investment or Cash-on-Cash return. Net Income
(after paying all expenses including mortgage) divided by Initial
Investment (Down payment + closing costs).
4) IRR: (Internal Rate of Return). Overall return on Investment over the
period of ownership. Figures out the overall profit, including all
annual cashflow (positive or negative) and after sales profits. This
method is the best way to figure your return, but it is the most difficult
to calculate because you must plug in many assumption which after
extremely hard to predict, if not impossible.
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Advantages of Real Estate:
1) Appreciation: Properties typically do up in
value.
2) Cash Flow: The money left over after all the
expenses are paid.
3) Equity Build-up: Loan principal reduces over
term of loan.
4) Tax Advantages: Properties can be
depreciated (write offs).
1) Appreciation: Properties typically do up in
value.
2) Cash Flow: The money left over after all the
expenses are paid.
3) Equity Build-up: Loan principal reduces over
term of loan.
4) Tax Advantages: Properties can be
depreciated (write offs).
Understanding the Advantages of Low Interest Rates:
Ex. If rates increased from 6% to 7% one would lose almost
$25,000.00 worth the purchasing power, based on a 30 year $250,000.00 loan. What this means is that, for the same payment you buy
$25,000.00 less when interest rates go up one percent.
Ex. If rates increased from 6% to 7% one would lose almost
$25,000.00 worth the purchasing power, based on a 30 year $250,000.00 loan. What this means is that, for the same payment you buy
$25,000.00 less when interest rates go up one percent.
FYI For Your Information (the power of compounding interest)
Here are some interesting questions pertaining to
time-value of month and the power of compounding
interest.
#1) If you invested $500 per month, at 12% return, in 30
yrs what would it be worth? Answer
#2) What if you invested $20,000 (lump sum), and
received 15% (annually, but compounded monthly),
what would it be worth in 30 years (360 months)?
This question pertains to the above example: Entitled:
Understanding the advantages of low interest rates.
#3) What is the difference in purchasing power in
#4) getting a 7% interest rate vs. a 6%?
#5) What about an 8% interest rate?
For the answers, see figure 1.1
time-value of month and the power of compounding
interest.
#1) If you invested $500 per month, at 12% return, in 30
yrs what would it be worth? Answer
#2) What if you invested $20,000 (lump sum), and
received 15% (annually, but compounded monthly),
what would it be worth in 30 years (360 months)?
This question pertains to the above example: Entitled:
Understanding the advantages of low interest rates.
#3) What is the difference in purchasing power in
#4) getting a 7% interest rate vs. a 6%?
#5) What about an 8% interest rate?
For the answers, see figure 1.1
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Figure 1.1
© Copyright 2004 David Gudmundsen
| SJ Fowler/GMAC Real Estate David Gudmundsen Associate Broker Investment Specialist (877) 649-6715 Toll Free (480) 830-2552 Direct azbroker@cox.net |
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