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Todd Barnes
  • Investor
  • Bonney Lake, WA
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Trying to figure out how the Annualized return is calculated

Todd Barnes
  • Investor
  • Bonney Lake, WA
Posted Sep 28 2022, 13:49

How do you come up with the Annualized return? What is the calculation, and what are the #'s used?

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Conner Olsen
  • Real Estate Agent
  • Austin, TX
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Conner Olsen
  • Real Estate Agent
  • Austin, TX
Replied Sep 28 2022, 19:40
Quote from @Todd Barnes:

How do you come up with the Annualized return? What is the calculation, and what are the #'s used?


I believe that's IRR

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Ashton Karp
  • Real Estate Agent
  • Bonney Lake, WA
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Ashton Karp
  • Real Estate Agent
  • Bonney Lake, WA
Replied Nov 26 2022, 19:33
Quote from @Todd Barnes:

How do you come up with the Annualized return? What is the calculation, and what are the #'s used?


 The annualized return of a property is a metric to show your projected equity in a property over different points in ownership, in proportion to your down payment and other acquisition costs. The graph is particularly helpful in showing visually how your equity grows exponentially due to compound growth. 
The metrics are typically loan amount (decreases over time), property value (increases over time), cashflow (increases over time), and selling costs. Tax implications of passive income, depreciation, capital gains, etc are not regarded in this process.  
The formula is complex and a calculator should realistically be used. Investopedia will give you the formula needed if you so desire.