What is your Return on Equity?

[Michael Swan]

Hi all,

Has anyone here ran a calculation of your return on equity?  To do so, you take the current cash flow and you divide that by equity you have in your RE. So your personal home has little to no ROE.  Right?  It is a liability.   

Plus, if you live in a place like I do, San Diego, you most likely have a lot of equity tied up in your Multifamily and personal residences.  I have $5,000,000.00 in RE and about $2,500,000 in Equity.  I cash flow approximately $120,000 per year. So, $120,000 divided by $2,500,000 or about 5% return on equity (ROE).  Now I expect that cash flow to rise to $160,000 in the next 3-6 months, due to repositioning projects.  That will put my ROE at approximately 6.5%. That is more like it.

What is your return on equity?  Let us know here!! If you have an extremely low ROE, let me know by personal message and we could communicate and I could give you some suggestions to get yours much higher!!

Swanny

[Lesley Resnick]

ROE is a big metric in securities.  In RE I think it is weak.  If you own a property free and clear, the ROE is low, in fact it is not calucable.  If you owed a lot of money on the property, it would be higher.  This assumes you redeploy the equity into another income producing asset.  Leverage skews the numbers.  

It is simply one data point, that is not enough information.  The question is what do you want the data to tell you?  Sell, refi etc?  

I look at:

rent multipier - allows a comparison of disparate properties, regardless of asset class, finance,location.

Cap rate - using current market and original purchase price

NOI - How much money do I have left at the end of the month

Alternate finance options - refi?

Alternative use of the money.  Could I realize a bigger return somewhere else? 

Tranaction cost