Returns on Investment

[Sean McDonagh]

How do you determine your ROIs?

I buy homes in SE Michigan for under $100k. The upfront returns are great, $85k purchase prices, $12,750 down, make the seller pick up closing costs and I’m generally in for under $15,000 all in up front.

To keep it simple and disregarding any minor repairs, my rents net me on average $3,000/yr.

Is it as simple as $3k / $15k = 20% ROI?

How do you recalculate the ROI after year 1? If I made upgrades of $5k in year 2, does it then recalculate as $6k / $20k = 30%?

Finally... Does anyone not count the pay down on principal when figuring a ROI and only count the Mortgage Interest, Insurance, and Taxes as the "expense?" To me it seems like a LONG term outlook for better gains, but how do I better evaluate that and an I looking to deep into it? Should I keep the simple formula?

Thank in advance folks!