How do I Calculate Long Term Return on Investment

3 Replies

Hi, I recently started renting out my first home after getting married and consolidating in my wife's house. I'm very analytical and try to keep track of things financially in spreadsheet form to know how out investments are going. I'm trying to figure out the "proper" way to calculate my long term ROI but I'm stuck on how to take into consideration capital investments or extra mortage payments over time. I recently read The Ultimate Beginners Guide to Real Estate Investing (highly recommended by the way to other newbies on here) and got the formula from the book aka (Ending Investment/Beginning Investment^1/#Years)-1.  Simple formula to put into the Excel (actually Google Sheets but who's keeping track) but I'm not sure how to capture additional contributions I make that aren't captured in the Schedule E; things like extra mortgage payments and capital expenditures that have to get depreciated over time but that I paid for up front out of my cash reserves.  The question is, do I add these additional amounts of investment that are from my pocket not my tenants in as part of the "Beginning Investment" number so that I'm not inflating my ROI or do I count it as Ending Investment because I could have just put that same money in the stock market or elsewhere instead of the rental if I didn't have it and it's still investment?  I've not found a good source yet to figure this out.  My numbers in my spreadsheet look appropriate at the moment but that doesn't mean they are right.  Thanks in advance!

Internal Rate of Return:  The Microsoft Excel XIRR function returns the internal rate of return for a series of cash flows that may not be periodic. ... just feed it dates and cashflows (positive or negative).  At the end of my cashflow series, I place today's date and the current value.

@Darius Kellar the rehabs did not due much to affect the price themselves at least not significantly (hard to say without listing it for sale as I'm in a small market), but according to the Zillow estimate the property value is about 65k, up 10k from when I bought it at the bottom several years ago.

@Dan Rudolph I will give that a try!

Thanks for the replies so far!