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Capital Formation and Capital Placement
Capital Formation and Capital Placement
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Return on Equity
| Posted on 7 February, 2013 at 0:43 |
1.
Many
people focus on making money from cash flow, appreciation and potential tax
benefits. Today, we will look at another attribute of investing in real estate that
is sometimes, but not necessarily, researched properly before refinancing. The idea is known as Return on
Equity. 2.
The
equity in a property is the difference between the loan amount and the fair
market value of that property. This equity that belongs to the owner has the
potential to be used as investment money for future projects. The question is
when should the owner use the equity to invest in that next project and when
should the equity be left in the asset and not touched. 3.
Mortgage
rates are near record lows and job prospects are improving plus there is an
increase in housing starts. Mortgage lenders such as Wells Fargo, indicate that
in the next 12 months there will be an increase in housing prices, activity in
sales and in housing starts, even though the U.S. economy is slow to recover.
For more information on the significance of this, be sure to take our Rich Dad
Education Elite Creative Financing Course. 4.
So
when should the owner consider using the equity in one asset to purchase
another asset? When the Return on Equity meets their criteria! That means the
return they receive on their equity is greater than the return they receive
from other types of investments i.e. stocks, bonds, etc. The Return on Equity
is calculated when you take the annual cash flow plus the annual appreciation
and divide that by the equity that is left in the asset. 5.
To
do this, an investor would first calculate the Return on Equity on the asset
before they refinance to see what the return is. Second, the
investor would then do the same Return on Equity calculation after they
refinance to see what that return is. There is one additional piece to the
puzzle. The investor will also calculate the Return on Investment on the money
used to invest in the next project. If the Return on Equity after refinance
plus the Return on Investment added together are greater than the Return on
Equity before the refinance, then that is the time to refinance and move the equity into the new
investment. 6.
To
find out more on how to take advantage of your equity consider taking our Rich
Dad Education Elite Creative Financing Course. Thank
You,
Richard Maryanski and Erik Maryanski
Rich Dad Advanced Elite Trainers and Mentors |
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Zillow explained the rise is “likely because of a seasonal acceleration after the traditionally slow holiday period.”According to Zillow’s research, housing markets can expect annual home value appreciation of roughly 3 percent, historically speaking.
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