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• Rental real estate noi calculation plus#

Initial Investment or Down Payment : $562,250Įnd of Year 1 Sales Proceeds $614,397 (assuming the property were sold end of Year 1)Įnd of Year 2 Sales Proceeds $661726 (assuming the property were sold end of Year 2) This captures the net rental cash flow for a particular year, and adds that year’s net equity increase (net appreciation and principal payment or debt pay down).ĭetermine Year 2’s Return on Equity (ROE) The numerator of the formula is the property’s cash flow and increase in the equity for that year. The difference between these two numbers is that year’s net appreciation and principal debt payments less sales expenses and income taxes.

Rental real estate noi calculation plus#

The amount invested (or denominator) is calculated as the initial investment (down payment) plus the entire increase in net property’s appreciation and the entire decrease in outstanding loan balance incurred prior to the year the ratio is being calculated.Ĭash-on-Cash Return is a similar calculation, but since the two draw backs of the traditional Cash-on-Cash Return are that property appreciation and principal debt payments are not factored into the formula, Return on Equity adds these two components to the traditional Cash-on-Cash Return calculation.Ī property’s net equity increase is calculated by determining what the “Net Sale Proceeds after Taxes” would be at the beginning of a year, and then again at the end of the year. Return on Equity (ROE) ratio calculates the amount of return generated in a particular year on the total amount of equity invested (or trapped) in a property.