Question by hwhitemore: What is your return investment in the house?
Suppose you buy a house for 150,000, one year later, the market price of the house has risen to 165,000. What is the return on your investment in the house, if you make a down payment of 20 percent and took out a mortgage loan for the other 80 percent? What if you made a down payment of 5 percent and borrowed the other 95 percent? Be sure to show your calculations in your answer

Best answer:

Answer by Dave W
I’m guessing this is for some kind of homework assignment, so probably they’re looking for a simple calculation like the following:

A 20% down payment on a $ 150,000 house is $ 30,000 so you invest $ 30,000 and borrow the other $ 120,000. After a year, you sell for $ 165,000 and pay off the $ 120,000 loan leaving you with $ 45,000. So you invested $ 30,000 and got $ 45,000 back after a year – which is a 50% return.

A 5% down payment on a $ 150,000 house is $ 7,500 so you invest $ 7,500 and borrow the other $ 142,500. After a year, you sell for $ 165,000 and pay off the $ 142,500 loan leaving you with $ 22,500. So you invested $ 7,500 and got $ 22,500 back after a year – which is a 200% return!

Unfortunately, in the real world your returns wouldn’t be anywhere near that. In fact if the house price goes up by only $ 15,000 you’d almost certainly LOSE money selling it after a year. First, you’d have to subtract out the closing costs for buying and selling the house (transfer tax, recording fees, various inspections, legal fees, etc.) which would be a thousand or two. You’d have costs associated with obtaining the loan (origination fee, appraisal fees, possibly “points”, etc.) which would be a couple thousand more. You’d have to pay interest on the loan for a year which might be about $ 7000. Unless you sell it yourself, you’d have to pay a realtor fee when you sell which is probably at least another $ 8000-$ 10000.

Buying and selling houses is very expensive so unless you’re in a housing bubble, I think it’s very difficult to flip a house in a year and make a profit (unless you buy it significantly below market value and fix it up to raise the value – or the housing market is in a bubble like it was a few years ago).

What do you think? Answer below!

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Question by hwhitemore: What is your return investment in the house?
Suppose you buy a house for 150,000, one year later, the market price of the house has risen to 165,000. What is the return on your investment in the house, if you make a down payment of 20 percent and took out a mortgage loan for the other 80 percent? What if you made a down payment of 5 percent and borrowed the other 95 percent? Be sure to show your calculations in your answer

Best answer:

Answer by Dave W
I’m guessing this is for some kind of homework assignment, so probably they’re looking for a simple calculation like the following:

A 20% down payment on a $ 150,000 house is $ 30,000 so you invest $ 30,000 and borrow the other $ 120,000. After a year, you sell for $ 165,000 and pay off the $ 120,000 loan leaving you with $ 45,000. So you invested $ 30,000 and got $ 45,000 back after a year – which is a 50% return.

A 5% down payment on a $ 150,000 house is $ 7,500 so you invest $ 7,500 and borrow the other $ 142,500. After a year, you sell for $ 165,000 and pay off the $ 142,500 loan leaving you with $ 22,500. So you invested $ 7,500 and got $ 22,500 back after a year – which is a 200% return!

Unfortunately, in the real world your returns wouldn’t be anywhere near that. In fact if the house price goes up by only $ 15,000 you’d almost certainly LOSE money selling it after a year. First, you’d have to subtract out the closing costs for buying and selling the house (transfer tax, recording fees, various inspections, legal fees, etc.) which would be a thousand or two. You’d have costs associated with obtaining the loan (origination fee, appraisal fees, possibly “points”, etc.) which would be a couple thousand more. You’d have to pay interest on the loan for a year which might be about $ 7000. Unless you sell it yourself, you’d have to pay a realtor fee when you sell which is probably at least another $ 8000-$ 10000.

Buying and selling houses is very expensive so unless you’re in a housing bubble, I think it’s very difficult to flip a house in a year and make a profit (unless you buy it significantly below market value and fix it up to raise the value – or the housing market is in a bubble like it was a few years ago).

Add your own answer in the comments!

Chile Property Investment Guide 2012 Edition
The Chile Property Investment Guide Highlights The Top 10 Areas In Chile With The Highest Investment Potential. These Are Up And Coming Towns And Neighborhoods That Will Be Transformed In The Coming Years And Could Return 1,000% Or More On Your Investment
Chile Property Investment Guide 2012 Edition

10 Minute Trading
Finally, A Low-risk Trading Method With A Huge Return On Investment, In Only 10-20 Minutes Per Month!
10 Minute Trading

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Return On Investment (ROI)-How To Cut Through The Marketing Hype

Article by Roberto

Financial institutions use return on investment or ROI to sell products. This is why you must ask one essential question to cut through the marketing hype.

What do we mean by ROI?

Essentially, it is what you get back in return for making an investment in a product, project or business.

Here are two simple examples:1. Suzie sells name badges for a living. She makes $ 1 profit per tag. Each tag costs her $ 2 to make. By expressing Suzie’s profit as a percentage of the unit cost, her ROI is 50%.2. Mr Greedy has $ 1000 to invest in a fixed deposit. A sales representative at his local bank informs him that he will earn $ 100 in interest after one year. Mr Greedy’s ROI is 10%. Note that banks will usually quote you an interest rate of 10% when promoting their savings or investment products.

The higher your ROI the harder your money is working for you and the more profit you will make.

The problem

Investment return calculations are highly flexible and can be easily manipulated to suit the user’s needs. When financial institutions advertise their products, they are going to tell you about great interest rates. It is only natural for these firms to sugar coat their investment returns to drive sales, which is why you need to ask one important question.

What is your net return?

Experts will quote you what is known as a nominal ROI on their products. This is the investment return before costs. That is all good, but you should be more concerned about the net ROI or return after costs.

Have a look at the following example:

Mr Return’s financial planner informs him that he can expect a nominal return of 10% on his investment portfolio. Inflation is 4%.

Firstly, this does not mean that Mr Return’s wealth will grow at 10% per annum. Secondly, it also does not mean that he will beat inflation by 6% (10% less 4%). If we look at his net return, it paints a completely different picture.

Nominal return: 10%Less inflation: 4%Less tax: 3.8%Less annual management fees: 1.5%Equals net return: 0.7%

What does a net ROI of 0.7% mean?

If you invest $ 10000 at 0.7% fixed investment return for 20 years, your real wealth will only grow by about $ 1500. And that is after 20 years!

Key lessons

1. Make sure you look at all the costs when assessing an investment product, project or business.2. Determine your net ROI. Will your return enable you to achieve your financial goals at the given level of risk?3. If your net return is not good enough, move on. Do not buy into a deal on the basis of nominal return.4. Your goal as a wealth creator is to MAXIMIZE ROI at the LOWEST possible risk.

Find More Return On Investment Articles

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Return On Investment (ROI)-How To Cut Through The Marketing Hype

Article by Roberto

Financial institutions use return on investment or ROI to sell products. This is why you must ask one essential question to cut through the marketing hype.

What do we mean by ROI?

Essentially, it is what you get back in return for making an investment in a product, project or business.

Here are two simple examples:1. Suzie sells name badges for a living. She makes $ 1 profit per tag. Each tag costs her $ 2 to make. By expressing Suzie’s profit as a percentage of the unit cost, her ROI is 50%.2. Mr Greedy has $ 1000 to invest in a fixed deposit. A sales representative at his local bank informs him that he will earn $ 100 in interest after one year. Mr Greedy’s ROI is 10%. Note that banks will usually quote you an interest rate of 10% when promoting their savings or investment products.

The higher your ROI the harder your money is working for you and the more profit you will make.

The problem

Investment return calculations are highly flexible and can be easily manipulated to suit the user’s needs. When financial institutions advertise their products, they are going to tell you about great interest rates. It is only natural for these firms to sugar coat their investment returns to drive sales, which is why you need to ask one important question.

What is your net return?

Experts will quote you what is known as a nominal ROI on their products. This is the investment return before costs. That is all good, but you should be more concerned about the net ROI or return after costs.

Have a look at the following example:

Mr Return’s financial planner informs him that he can expect a nominal return of 10% on his investment portfolio. Inflation is 4%.

Firstly, this does not mean that Mr Return’s wealth will grow at 10% per annum. Secondly, it also does not mean that he will beat inflation by 6% (10% less 4%). If we look at his net return, it paints a completely different picture.

Nominal return: 10%Less inflation: 4%Less tax: 3.8%Less annual management fees: 1.5%Equals net return: 0.7%

What does a net ROI of 0.7% mean?

If you invest $ 10000 at 0.7% fixed investment return for 20 years, your real wealth will only grow by about $ 1500. And that is after 20 years!

Key lessons

1. Make sure you look at all the costs when assessing an investment product, project or business.2. Determine your net ROI. Will your return enable you to achieve your financial goals at the given level of risk?3. If your net return is not good enough, move on. Do not buy into a deal on the basis of nominal return.4. Your goal as a wealth creator is to MAXIMIZE ROI at the LOWEST possible risk.

Find More Return On Investment Articles

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Return On Investment (ROI)-How To Cut Through The Marketing Hype

Article by Roberto

Financial institutions use return on investment or ROI to sell products. This is why you must ask one essential question to cut through the marketing hype.

What do we mean by ROI?

Essentially, it is what you get back in return for making an investment in a product, project or business.

Here are two simple examples:1. Suzie sells name badges for a living. She makes $ 1 profit per tag. Each tag costs her $ 2 to make. By expressing Suzie’s profit as a percentage of the unit cost, her ROI is 50%.2. Mr Greedy has $ 1000 to invest in a fixed deposit. A sales representative at his local bank informs him that he will earn $ 100 in interest after one year. Mr Greedy’s ROI is 10%. Note that banks will usually quote you an interest rate of 10% when promoting their savings or investment products.

The higher your ROI the harder your money is working for you and the more profit you will make.

The problem

Investment return calculations are highly flexible and can be easily manipulated to suit the user’s needs. When financial institutions advertise their products, they are going to tell you about great interest rates. It is only natural for these firms to sugar coat their investment returns to drive sales, which is why you need to ask one important question.

What is your net return?

Experts will quote you what is known as a nominal ROI on their products. This is the investment return before costs. That is all good, but you should be more concerned about the net ROI or return after costs.

Have a look at the following example:

Mr Return’s financial planner informs him that he can expect a nominal return of 10% on his investment portfolio. Inflation is 4%.

Firstly, this does not mean that Mr Return’s wealth will grow at 10% per annum. Secondly, it also does not mean that he will beat inflation by 6% (10% less 4%). If we look at his net return, it paints a completely different picture.

Nominal return: 10%Less inflation: 4%Less tax: 3.8%Less annual management fees: 1.5%Equals net return: 0.7%

What does a net ROI of 0.7% mean?

If you invest $ 10000 at 0.7% fixed investment return for 20 years, your real wealth will only grow by about $ 1500. And that is after 20 years!

Key lessons

1. Make sure you look at all the costs when assessing an investment product, project or business.2. Determine your net ROI. Will your return enable you to achieve your financial goals at the given level of risk?3. If your net return is not good enough, move on. Do not buy into a deal on the basis of nominal return.4. Your goal as a wealth creator is to MAXIMIZE ROI at the LOWEST possible risk.

Find More Return On Investment Articles

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