RoE = (NE - OE) / OE
Return on Equity = (New Equity - Original Equity) / Original Equity
NE: New Equity produced by a sale OE: Original Equity in the property at the time of purchase.
- Calculate the Equity in the property when you invested
- Calculate the equity in the property when sold.
E = FMV - MPO - L - OD
Equity = (Fair Market Value of the property + Closing Costs) - (Mortgage Payoff Amount) - (Liens) - (Other Debts on the Property)
E: Your Equity in the property FMV: Fair Market Value of the property + Closing Costs MPO: Mortgage Payoff Amount L: Liens on the property. A Lien in the right to keep possession of property belonging to another person until a debt owed by that person is discharged. OD: Other Debts on the Property
Example) Buy a Duplex for $210k, $5k in closing costs paying $50k down aka 23.809% down, and getting $160k mortgage, then the equity in the property is $55. FMV = $210k + $5k MPO = $160k L = 0 OD = 0
E = FMV - MPO - L - OD
$210k - $50k
After Renovation Value
Appreciation
(Present Value - Original Value) / Original Value
$400k Fourplex a year ago, and now it's worth $426,800
A = ($426,800 - $400k) / $400k
A = $26,800 / $400k
A = 0.067
It's apprecaited 6.7%
Future Value Calculation
$400k Fourplex and we know the appreciation rate is 6.7%
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