La Jolla Real Estate: La Jolla Luxury Homes

Calculate Your Return on Equity for Your Oceanfront La Jolla Homes

Many oceanfront La Jolla homes investors are involved in multiple properties and use leverage in their purchases. When deciding on the viability of an investment, one of the measures used is the expected Return on Equity in the first year. If two oceanfront La Jolla homes are similar, the one which will produce the best first year return may be the better short term investment.

Here's How:

1. Determine the Cash Flow After Taxes. In this case, we'll assume a CFAT of $11,000.

What is the cash invested as down payment or other into acquiring the property? We'll use $170,000 in this example.

2. Divide the CFAT by the cash invested:

$11,000 / $170,000 = .065 or 6.5% Return on Equity

Tips:

Get the top calculations with our Real Estate Financial Calculator Spreadsheet.

You will simply need a calculator and a few minutes of your time to calculate the return on equity for any property that you are considering purchasing. Especially for new investors, learning to determine the return on your investment is absolutely crucial to your success as a real estate investor. Making an informed decision is not difficult if you have the knowledge and a plan. I am sure that you have heard horror stories about people who have invested in properties, only to learn that they are in over their heads, and then blame their misfortune on the current market condition. The bottom line is, the rules of smart investing never change. If the numbers don't jive, it is not the right property to buy.

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