Guys,
I need some help steve refers to Gross ROI in his book on pg32 then on pg109 he refers to ROI as being net profit divide by asset value when comparing it to COCR. What I need to know is there such a thing as Gross ROI? If so then how is it calculated – what is the equation? Also is there such a thing as Net ROI? If so then what is the equation for it?
It’s all very confusing when talking to real estate agents that are quoting 10% net return and I want to make sure I measuring ‘apples to apples’.
Please help
RNAT
try putting this post under ‘Help Needed’ or ‘Accounting and Legals’ – im sure you’ll get better help there.
“If You never never ask, you’ll never never know”
“gross ROI” and “net ROI” are not terms typically used, but in the books context they likely represent the “pre-tax” and “after tax” return on investment – I am not familiar with the book.
Terms commonly used to define “pre-tax” income include “gross margin” or “gross profit margin”.
“After tax” is defined as “net income” or “net profit”.
However, reference to “gross and net” is not generally used to define return on investment.
“ROI” is expressed as a “net” or “after tax” income or profit. It is calculated as the after tax [“net”] profit divided by the total assets.
— Michael
Hi Rnat
Now I haven’t read the book either so I might not get the context but I have seen gross ROI used to refer to the total rent for a year divided by the cost of the property. Or alternatively you divide by the deposit to determine the rate of return you are getting on the cash it cost you.I have also seen net ROI used to refer to the the same sort of equation but instead of just dividing the total rent for a year you first take away the expenses giving yourself a net figure
Hope this helps
DavidThanks all,
the advice has been very helpful.Looking over the book again I think it is saying that the 11sec rule will identify properties with a gross ROI in excess of 10.4%. Net ROI is as the philosopher says: rent-all expenses and expenses includes outgoings, tax, cost of finance etc.
tks again
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