How to calculate my return on my South Bend real estate investment

South Bend Investment - What is your property ROI

How to define South Bend Real Estate Investment Returns?

Return on investment(ROI) is an accounting term that shows the percentage of invested money that is returned to an investor after the deduction of associated costs with making the investment. For the Real Estate Investor, this may sound confusing, but the formula may be simply stated as follows:

ROI = (Gain from investmentCost of investment) [divided by] Cost of investment.

For more details see this great article on Investopedia

A Deeper Dive Into Real Estate ROI

While this calculation we provide a general idea of ROI, we believe other calculations including time invested into South Bend real estate plays a big role in calculating ROI.

When the Tiffany Group is considering the true value of real estate within South Bend, Indiana, or anywhere else for that matter, there are two value rules we follow:

  • Don’t pay too much for the physical structure.

When it comes to buying an investment home, you’d better think long and hard before you’d consider paying a 10% premium to comparable values in the neighborhood. Some of the best real estate investment advice out there-and often the hardest to come by-is to buy property at a 20% discount. If you’re not too picky, it’s actually not hard to do (especially, if you’re willing to do a little fixing up after buying the asset).

  • Don’t pay too much for the business.

The second value rule regarding real estate investment advice is easy to follow, as well. Just like a stock, look at the P/E ratio… a.k.a. the rent. While real estate prices can fluctuate in the short run, in the long run, property prices are significantly driven by rental values. If you look at the “Price-to-earnings” ratio of your property, you can learn about your home’s true “intrinsic” value.

As a good real estate investment rule of thumb, net rents in real estate (by “net,” I mean after expenses) have averaged about 1% above Treasury bonds (that’s the way it’s been with real estate stocks since 1990). The Treasury bond is at 5.15% as I write, so we might guess that the nationwide average net rent is 6.15%. (6.15% is the “earnings-to-price” ratio, so we need to find the inverse of it for the P/E of your house.)

How can you figure the P/E for your property? Forbes suggests the only real way to know: “To get rental data for homes comparable to the one you’re buying or selling, check with the relocation department of big real estate agencies.” You’ve got to know what the comparable net rents are to your property.

Once you’ve figured your P/E, it may be very different from the current nationwide fair value P/E guess of 16. If your P/E is low, you may have gotten a good deal, or you could collect high rents from your place. If your P/E is twice as high as 16, that is where we would typically consider selling.

The tricky thing about selling real estate is that real estate is not liquid. Unlike stocks, where we have the luxury of being able to sell whenever we want and the luxury of trailing stops to get us out exactly when we want out, in real estate, it’s not so easy. You unfortunately need to be a good guesser, because you actually need to sell into an “up” market, and buy in a down market.

Best Resources for Investor of Michiana Real Estate

In South Bend those agencies would be Cressy & EverettAt Home Realty Group, and Integra Real Estate of Michiana, and your Realtors of choice would be John Tiffany, and Francee Foster. You could also search for a Dave Ramsey ELP. Now back to P/E ratios, but, before we continue — note, this is all a very rough guide and we recommend you speak with a professional.

*DISCLAIMER: Please note, these are simply tools to help you — the real estate investor. We suggest you discuss all your investment options with a qualified professional.

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