Return on investment, or ROI, is the single most important metric to consider when it comes to purchasing rental real estate. ROI is used to evaluate the performance of an investment. This metric determines how profitable your investment will be.

If you’re assessing a real estate investment, ROI is critical. It is the entire reason for investing in real estate! You need to know how to use a simple and conservative formula in order to thoroughly analyze the return on a rental property.

In this video, I’ll show you a simple and straightforward way to calculate ROI. You’ll learn about the cash-on-cash formula, and the importance of being conservative in your estimate. We’ll talk about cash flow, expenses, and more!

How to Evaluate Debt Service on a Rental Property: https://goo.gl/CNzxFq

BOOK A FREE CALL WITH OUR TEAM TODAY AT MORRIS INVEST: https://goo.gl/DNIIh0

CHECK OUT OUR OTHER GREAT VIDEO PLAYLISTS LIKE:

VIDEOS ABOUT TURNKEY REAL ESTATE INVESTING:

https://goo.gl/1bGEhB

OR

VIDEOS ABOUT GETTING STARTED IN REAL ESTATE

https://goo.gl/dPfWeY

OR

VIDEOS ABOUT REAL ESTATE NEWS

https://goo.gl/m1b3U8

SUBSCRIBE AND JOIN OUR AWESOME COMMUNITY:

https://goo.gl/Polf6I

LISTEN TO THE PODCAST:

iTunes: https://goo.gl/vM969n

FOLLOW ME ON SOCIAL MEDIA:

Twitter: http://www.twitter.com/claytonmorris

Facebook: https://www.facebook.com/MorrisInvest

Instagram: https://www.instagram.com/claytonmorris

40k for a house?

Hello Clayton,

Sometimes as new investors, we are not always that skilled or lucky to get 12% EVERY single time. Therefore, what do you think is "THE ABSOLUTE LOWEST" ROI that should be acceptable?

How does this factor in tax deductions, if at all? I am assuming attorney and tax preparer fees are included.

Hi Clayton! Just chatted with Glenn the other day – we're SO EXCITED to get started with you hopefully as early as April. Very stupid question: when I begin BRRRRRing, where does my new mortgage factor into the ROI formula? Am I still giving each property's cash flow a 40% haircut? For example: 1] pay cash for a $40,000 house. 2] refinance getting a $30,000 mortgage (75% of equity). Now when I calculate ROI on my $40,000 house, that has a $30k 30 year mortgage at 4.25% ($148 payment each month), is the new $148 payment included in the 40% haircut of the (say) $700 / month rent cashflow? OR am I first subtracting this new mortgage expense from my rental cashflow ($700-$148=$552) and then applying a 40% haircut to the $552? Thank you! Can't wait to get started.

Hi Clayton, I love this video and just did it on our investment property … huge eye opener ..are you including your mortgage payment in the 40% expenses deduction?Thanks!

This ROI is after payment mortgage charges?

Is this 12% ROI after the deduction of mortgages costs

Good video. Thanks! Years ago, my mentor's guideline for evaluating a deal was to multiply the monthly rent by 5 years (rent x 60). Using this formula in your example, he would have been willing to have paid as much as $42,000 for the house. It is a quick way to ballpark the numbers to get close to the same place.

With the Vanguard S&P 500 index at nearly 15% since inception, can you provide some thought process into why this is still a good idea? I think I can see why – but it might be helpful to break that down. Simple things like still getting 12% even in a down market, or tax advantages of depreciation, etc. It would just be good to mentally justify that so if you're doing a joint venture with a savvy investor you can express your value add. .

This advice is as useful as "buy low sell high"…

This advice is as useful as "buy low sell high"…

Hi..Mr Morris..one question

You always talk about 40000 as your favorite house range price..right?

Buy how about the rehabilitation cost ? How much is your ceiling for rehabilitation of the houses?

So ..if you buy the house for 40000 and your expended 15000 in rehab, then that means the final cost of your house is 55000?

Or is 40000 the total cost of the house already rehab?

Please help to understand this confusion. ..Thanks

Can you tell the vacancy rate just by looking around the neighborhood?

Trying to figure out how to do a rate of return in Excel and I keep getting a negative number do you know why this is?

I really don't get what your roi is saying is it saying how long it will take to get your $ back or your interest on your investment? thanks

very simple, thank you.

Wow, you guys in the US have really different figures. I'll be lucky if I will be able to do 6%.People around here don't have the money to pay that much rent. But still, not that bad, the way I see it, real estate has real value so it's a pretty safe bet to keep my money in it.

Hey Clayton! Great video as always! Can you clarify whether your 40% for operating expenses also includes Property Mgt. fees as well?

I currently have 2 rental properties. As I acquired them my mindset was VERY similar to the strategy you teach. I must say after watching your videos and listening to your Podcast you have completely inspired me and validated my mindset. However, one thing I still lack is utilizing a Property Manager. After listening to your podcasts it totally makes sense to me now. I should fully automate my rental properties by using a PM which will allow me to scale at a ridiculous rate! That's the Game Changer! I am trying to determine if my rental properties would yield me a good ROI if I were to use a PM (assuming 10% for PM Fees) however I want to make sure that I'm not missing something… Can you confirm that I am calculating the ROI correctly if I were to use a PM?

PROPERTY 1

Purcahse Price: $29k

Rehab: $10k

All In: $39k

Rent: $1035

Operating Expenses (per month)

Taxes: $170

Repairs/Maintenance (aprox 5%): $60

Vacancy (aprox 5%): $60

Property Mgt. (10%): $104

Total Monthly Operating Expenses: $394 or 38% (Round up to 40%)

$1035 x 12 = $12,420

$12,420 x 60% = $7,452

$7,452 / $39k = 19%ROI

—————————————————————————–

PROPERTY 2

Purcahse Price: $26k

Rehab: $20k

All In: $46k

Rent: $1150

Operating Expenses (per month)

Taxes: $200

Repairs/Maintenance (aprox 5%): $60

Vacancy (aprox 5%): $60

Property Mgt. (10%): $115

Total Monthly Operating Expenses: $435 or 38% (Round up to 40%)

$1150 x 12 = $13,800

$13,800 x 60% = $8,280

$8,280 / $46k = 18%ROI

These numbers are for cash buyer only? If you have mortgage on it, would be zero return

What if after the purchase you spend another $25K for renovations, should that number be added to readjust the ROI figure?