So on my last video I spoke about ROI, and now today we are going to talk about ROE. And this a metric we tend to use when we are buying with OPM, we basically want to figure how much money we are making on our money.
And it’s a very important metric, and by the end of this video, you’ll know what it means, how to use it and why its important.
????Call Me????: https://bit.ly/30IBr0i
????Second Channel????: https://bit.ly/3c4sVPS
????????????Financial Freedom Course????????????$100 OFF CODE: LONGTERM
Link: https://longtermteam.teachable.com/p/financial-freedom-steps-from-nothing-to-freedom
????MY M1 FINANCE PORTFOLIO???? PLUS $10
Link: https://m1.finance/37SHd4241z-N
First Lets talk about Definition
ROE stands for return on Equity
And it Equity is the amout of ownership you have within a deal
So if something cost 100k and you put down 50k you have 50k worth of ownership, or 50k in equity or 50% of equity
For example:
If you are going to be buying a property you want to see the return you are going to be making on your actual invested money, you’re ownership over the asset
Formula:
(Net Return/equity)*100 = ROE
So lets run this formula and see how it works
First Lets Decide how much equity you will be buying
So I want to buy a piece of real estate
Asset cost about 100k and I’m going to put down 20%
So I have 20k in equity
Second lets calculate the Net Return on the assets
It’s single family home and I can rent it for about $1000 a month
30 year mortgage at 7.48% on the 80k balance is about $558 , taxes $66, insurance $66, $200 for maintenance
Gross inccome is $1000- expenses of $890, I have a net income of about $110
So lets calculate
Per month I keep $110 in my pocket, per year that’s about $1,320
My equity is about 20k
So $1,320/20k *100 = 6.6% rounded up
I could increase by saying: I’ll have fund for maintenance
So my income would increase by $200 per month
My overall ROE would be 18.6%
Why is it important that I run these numbers
Well I want to use that metric, to compare to other investments
If I put 20k into the stock market I can make about 10% annually without any of the management issues
If I bought the property down the street selling for 70k that needs 10k in rehab, I could have put down the same 20k but have an additional 20k in free equity
Why is this important:
It helps you how good of an investment you are making, anything above 12-15% is pretty good
Because remember you have to taxes on the income and worry about inflation
Ps. Obviously the more equity you have in this deal, the lower the return, but also the more ownership you have and the more income you get to keep, and the lower your risk. Remember the lower the risk the lower the return, that’s to be expected.
Now what happens: if you put down 0%
Well in my next video we will talk about the infinite return money hack
* PRO TIP*
INFORMATION IS EVERYTHING
????1 on 1 Talk + My Budget + Stock Investments????
https://www.patreon.com/tommybryson
????Merch????
https://teespring.com/stores/tommybryson
✅2 FREE AUDIOBOOKS✅
https://amzn.to/2Enayo8¬¬¬
????M1 FINANCE $10????
https://m1.finance/37SHd4241z-N
????ACORN FREE $5????
Link: https://acorns.com/invite/38EYSU
⚡FREE KINDLE UNLIMITED⚡ (traditional reading)
Link: https://amzn.to/2VGbxt9
????????????DISCORD PRIVATE GROUP????????????
https://discord.gg/EcZEHpA
My Camera Gear: https://www.amazon.com/shop/tommybryson
✔ Help Us Reach 500,000 Subscribers: https://goo.gl/0wvm6w
????All My Social Media????
Link: https://linktr.ee/tommybryson
*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.
source
