How Do I Measure My Investment Propertys Cash on Equity Return?

Would you invest your money in the bank for a low interest rate? Probably not! Unfortunately many investors who have owned their investment properties over time have exhausted depreciation (a major tax benefit), and are earning a disappointing annual return on their equity. The Return (or growth) on investment (ROI) has done well over the years. However, the Return on Equity (ROE), the income you receive from it (if not analyzed by a tax or financial planner) could be unbeknownst to youpoor. Here is a simplified example of computing your ROE: 1) Annual Gross Income Monthly rent times 12 = $__________ 2) Annual Expenses Include Monthly Mortgage payments times 12, then add Insurance, Property Taxes, Maintenance, Utilities, and all other Expenses spent annually. $_____________ 3) Annual Net Income $___________ Subtract 2 (Expenses) from 1 (Gross Income) 4) Estimated Net Equity of Your Investment Property (I as your Realtor can help you with this) $_____________. 5) To arrive at your Propertys Approximate Cash on Equity Return, take 3 (Net Income) and divide by 4 (Estimate Net Equity). This is your Investment Propertys Estimated Cash on Equity Annualized Rate of Return______% Surprised? If your annual percentage rate of equity return is disappointing, perhaps its time to consider Two (2) Possible Solutions for Better Cash Flow: 1) Refinance the property and acquire additional investment real estate which can grow in both ROI and ROE.

or:
2) Sell and Acquire superior properties via a 1031 Tax Deferred Exchange. The 1031 Tax Deferred Exchange is one of the last tax shelters allowed by the Internal Revenue Service. It is a transaction in which a taxpayer exchanges investment real estate for other investment property which allows one to defer the payment of: Federal Capital Gains Taxes, the Recapture of Depreciation Taxes, and California State Taxes. The IRS allows this for real property held for investment purposes, or the productive use in a trade or business anywhere in the U.S.A. This includes any real estate held for investment EXCEPT your primary residence and second family home. Now you can move forward into more profitable investment properties with a greater percentage of Equity Return (ROE) and possibly a new adjusted Depreciation schedule. For more information, feel free to contact me.

Marco Pirozzolo
Realtor
CA BRE License #01918280 NYS DOS Brokers Lic #30PIO900998 Direct: 310.975.5765 mpirozzolo@coldwellbanker.com