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How to calculate return of investment on a rental property?

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  • Jul 9th, 2015 11:13 pm
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Jan 6, 2015
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Toronto, ON

How to calculate return of investment on a rental property?

Which method do you use to calculate the return of investment on a rental property? I've heard of a few different ways but not sure due to the conflicting opinions.
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Dec 16, 2007
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foodyforlife wrote: Which method do you use to calculate the return of investment on a rental property? I've heard of a few different ways but not sure due to the conflicting opinions.
(Gains-costs)/ cost

A lot of people tend to inflate their roi on real estate by neglecting to add in miscellaneous costs such as insurance, taxes, interests, maintenance/repairs etc. and simply calculate based on rental income, purchase price and appreciation
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Feb 8, 2014
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hitman_24 wrote: A lot of people tend to inflate their roi on real estate by neglecting to add in miscellaneous costs such as insurance, taxes, interests, maintenance/repairs etc. and simply calculate based on rental income, purchase price and appreciation
Very true

Being a landlord is also complicated and risky, tenants have the power to destroy your property leaving you with little recourse, you can sue them all you want, good luck collecting, especially on large amounts

So you have to chose tenants carefully (and hope for a bit of luck), and every house needs maintenance and repairs, tenants are typically hard on houses, so expect more repairs (and you should do inspections at least twice annually). The problem with budgeting for repairs is that they are infrequent and the cost is not stable, you may pay $2000 in repairs this year, $500 next year and $6000 the following year. I've heard a rule of thumb that you should keep at least 50% above the mortgage payment aside each month for repairs, i think thats an inflated number, but does give you an idea that its not an insignificant expense.

You have to be able to resist the most sob stories and not mind being portrayed as a monster, be willing to cut your losses when necessary (you can't think like a gambler that a little more pain will result in gain), and be willing to deal with the police, the municipality and even the courts if necessary, you always hope you won't get such a tenant but if you rent the place long enough you will eventually deal with all of these entities.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people

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