Properties for Sale in Sri Lanka ? How to Calculate ROI
Before investing in some of the most valuable sounding properties for sale in Sri Lanka, you should calculate the profitability of the said properties. You can use a few financial calculation methods to determine the return you would get for investing in a particular property.
Calculating ROI on property investments in Sri Lanka
How do you calculate profitability in real estate? With so many valuable properties for sale in Sri Lanka, how do you calculate return on investment (ROI)?
When you calculate your returns from a certain property, you?ll need to factor in additional costs such as the interest rate of your mortgage and the property maintenance cost. We?ve listed down a few calculation methods you could use to figure out your return on investment.
Cash on Cash Return
Cash on cash returns provides the percentage of the ratio of yearly pre-tax cash flow to the total amount of cash that you invested. You can use this method to calculate the cash flow from the property you are looking to buy. This metric is useful when you want to include your mortgage interest rate and property maintenance cost in to the mix to get a realistic understanding of the nature of returns.
In order to calculate cash on cash returns, you have to first calculate the total expenditure.
Total cash invested = Initial down payment + loan fees + insurance and maintenance cost + interest on loan
Afterwards, calculate the annual pre-tax cash flow.
Annual pre-tax cash flow = Monthly rental fee + additional income from the property
Divide the annual pre-tax cash flow by the total cash invested and multiply this by 100 to obtain your return on investment rate.
You can use the cap rate metric to compare properties before you make the big decision. The cap rate determines how much your property will yield within a year, given that you use cash to buy the property instead of obtaining a loan.
Cap Rate = Net Operating Income / Current Market Value
Multiply this by 100 to get the percentage of your return.
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