How to compute missing values for ROI and ROE?

Question

I'm reading The Millionaire RE Investor and he has a chart there calculating ROI and ROE. However, I'm a little unsure how some values were calculated.

Assumptions:

Property Value: $70,300

DP (20%): $11,249 (initial investment acquired at 20% discount)

Rent and market value appreciation: 5%

Mortgage: 30-year loan at 7.43%

Now on his chart on the first year, here are the values:

Start of Year Market Value: $70,300

Annual Price Appreciation: $3,515

Year End Appreciated Market Value: $73,816

Annual Principal Debt Pay Down: $420

Year End Accumulated Equity: $29,244

Annual Cash Flow: $300

ROI: 37.7%

ROE: 16.7%

I'm curious how Annual Principal Debt Pay Down, Year End Accumulated Equity and Annual Cash Flow were gathered based from the given assumptions.

Anyone can shed some light on this?

Bill D. · Answer

7 years ago I read that book and it definitely launched my real estate investing.  I think you got your answers above but I do recommend the book.  Keep going, you are on the right path...

Brett Russell · Answer

@Ava G.

If you would share the page number, we might be able to answer all your questions.

To get the Annual Principal Debt Pay Down, just refer to an amortization schedule online.  The mortgage ends up being for just about $45K (after getting that 20% discount on value and putting 20% down).  Plug that amount plus the term and interest rate and you'll get the full schedule and you can sum the principal amounts for the first 12 payments and that equals about $420.

To get Year End Accumulated Equity, take the year end value and subtract the current mortgage balance (the starting balance minus the amount it was paid down during that time (ie the $420 from above) or it's also listed in the amortization schedule.)

I'm not sure about the Annual Cash Flow without reviewing the book.