Return on Equity: Check my math

[Travis Moe]

BP Community -

Will you all help me double check my math and my assumptions on my current annual ROE? I own 3 properties with the following bar napkin financials:

Current Market Value: $1,215,000

Current Total Loans: $590,000

Current Equity: $625,000

Current Total Annual Cash Flow $20,646 (positive)

I'm taking that cash flow and dividing by my total equity to render a current ROE of roughly 3.3%.

Does this sound even halfway correct to you, BP? Thanks!

[Andrew Crinnion]

@Travis Moe

That math is correct. I like to take a look at my return on equity in combination with others (cash flow, return on cash invested, appreciation, etc.) to determine the health of my rental. I use my return on equity metric to determine if I am efficiently growing my investment, as a CPA I like to reduce my equity by taxes and closing cost because that is the amount of cash I would receive if you sold everything and deployed that cash somewhere else. You have to decide if 3.3% return on equity is sufficient for your investment goals, or could you sell everything and take the cash received and invest it elsewhere and earn a higher return.