What is a true return

2 Replies

Scenario,

Buy duplex   400,000

note on          320,000

Gross income 53k

after expenses, note etc   you have a net income of 21000.00

ok,  you have put up, 80k,  after your expenses, which include note, taxes, everything involved in running the property

your net is 21k    so, is your return    21k / 80k

or is your return 21k / 400k 

it seems to me,, if you are taking money out of your cash/stock or what ever portfolios to buy a investment property, and if you are getting 3% at this level, and you could get 21k or 30 some odd percent on the rental level, that this is the basis of your investment criterial  sure, on the whole it is 6%  but that is not the real return on YOUR money, its the return on the banks money and expense money so what is left is YOUR money,,,and that in the end,, is what we are looking for, or if that is NOT the evaluation determination,  why isn't it and on what other level would you make it,,,

Here is why i am confused,, if i take out 80k, at 3% (dividends from a stock) that is 2400 a year.  that 80K is now 21k, in the rental.. (this is an actual scenario on a vacation rental opportunity i am sweating over),  why do you even care what the gross return is,, isn't it what your return on your money that is the crux.. if i take out the 80k and get a 21k, vs 2.4k,, it seems a no brainer..

please feel free to refute the math

@Kim Kaiser

You are comparing oranges and apples. 

You can search for ROI vs ROE or vs CCR.

I'd recommend to read 

https://www.biggerpockets.com/forums/88/topics/46088-roi-vs-roe-vs-cash-on-cash

And

https://www.biggerpockets.com/forums/88/topics/46088-roi-vs-roe-vs-cash-on-cash

You'll find many other topics on the issue

Thanks,, i went back and read the initial post, and all the subsequent replies,,, and to be quite frank,, the whole article got pushed in to tax effects, buying below market, is it a flip,,and then, two or three opinions that disagreed with one another,  so, I am back to the original question.  All the other tax considerations, purchase above or below market, and all the definitions that one says is all the same, not a flip, the other says is a different calculation.

Based on what i put up there,,, assume at market if it makes it easier, and its a strait up deal, take out the re sale, take out being a flip,, just a strait numbers evaluation, on an income property,  all the perceived variables are accounted for and this is the final set of numbers that you come up with after all the other items,   where do you make your basis for decision,  return on your money put in,  OR the total return on the investment,, 

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