In this quick video, Real Estate Entrepreneur Michael Del Prete explains a calculation called Return on Equity (ROE). This formula should help you decide if you should sell.
Hey, everybody. Mike Del Prete is here with wehearthouses.com. The market is up and a very popular question right now is should I sell my investment property? So I want to show you a quick calculation called return on equity. So every time you sell a property, it does create a taxable event, so I do suggest speaking with your CPA. Now this scenario is going to be very simple and basic. Now for your rent, let’s start with 1,100 dollars a month. So take your monthly rent which is 1,100 dollars a month and multiply that by 12. It will give us 13,200 dollars annually. The next step is to find the value of your property. This is very easy to do; call a professional local real estate agent in your area and ask them to assess your property and give you a value. They wouldn’t mind doing this because they would potentially like to earn from your business. So now you’ve got a value of let’s say 220,000 dollars on your rental property. Now, we have to see whether you have any loans against the property. And in this scenario I am going to go with 100,000 dollars loan. Now we are going to take the 220,000 dollar value and minus the 100,000 dollar loan from it. This will give us the potential equity of 120,000 dollars. So in today’s market, with that 120,000, it’s kinda like it’s sitting in the bank. So what I want you to do next is take your 13,200 annual income and divide it by 120,000 equity. This will give us 11% return on equity. So now ask yourself if you can take that 120,000 dollars from selling the property and reinvest it into another real estate project and get better than 11% return. If you can, it may be wise to do so and sell the property. This is called return on equity; hopefully, it helps you decide if you should sell or not. My name is Mike Del Prete and thank you for watching.