ROI on a condo i moved out of, but now rent

[Kim Leduff]

Hi all,

how do i calculate the ROI on a condo I bought in 2010 but I recently moved out of and now rent? its cashflowing $400 monthly. but what should be the denominator in my ROI calc? the down-payment i made 10 years ago plus any expenses/repairs ive made since then? i know my annual return but Im not sure if i should be including 10 years worth of expenses as the denominator.

Any tips would be much appreciated.

Best,

Kim

[Ronald Allen Barney]

The rear view lens of previously-bought property for evaluating cash on cash return is relative equity. In one scenario if you just sold the condo, took your cap gains tax hit, closing costs hit, and pocketed the difference, that's an equity value to compare against renting the property out. Renting it out you can still cash out refi at a lesser equity amount due to LTV, take a different amount of closing costs hit, no capital gains taxes, and come up with a different equity result that way. The difference in equity results is the "cash" investment into holding and renting the property versus selling, or rather, a cash virtual outlay in the form of getting less cash while moving out. That virtual cash investment should be the denominator to compare to cash flow.