NWROI - Brandon Turner's Equation

[Francis Figueroa]

Does anyone remember when Brandon Turner used NWROI in his house hacking book? I am curious about how he comes up with the number. . . . the formula goes 

• NWROI = (cash flow & rent savings + loan paydown + appreciation)/ Initial Investment

So, if you have a low initial investment - it looks good on paper. It is a favorable equation b/c you get to include rent savings & loan paydown 

However, I do not understand how you can use loan paydown for the equation. I get that it's the equity you are getting in the house (you only can include the principal you are paying down) - but that feels as if it should be included as a part of your investment. If you are going to say your loan down part of your return for your net worth -- it should also be discounted, considering it is money leaving your pocket.

[Greg Scott]

I can see your point.  I would separate it by one you choose and the other happens as part of monthly operations.

I can chose to make an investment by buying a property.  I may not buy another for a year.  I can choose to update the kitchen (an investment) in that property and may not make another update ever. 

Loan paydown happens every month as part of the operations of the property, month after month. I also wouldn't consider that part of my investment because I'm actually not taking money out of my pocket to pay it down.  A portion of the monies the tenant gives me pays that down.