{"id":650,"date":"2021-08-03T19:08:04","date_gmt":"2021-08-03T19:08:04","guid":{"rendered":"https:\/\/www.bafcorp.com\/blog\/?p=650"},"modified":"2021-08-03T19:08:04","modified_gmt":"2021-08-03T19:08:04","slug":"how-to-determine-commercial-real-estate-roi","status":"publish","type":"post","link":"https:\/\/www.bafcorp.com\/blog\/how-to-determine-commercial-real-estate-roi\/","title":{"rendered":"How to Determine Commercial Real Estate ROI"},"content":{"rendered":"\n

As a commercial real estate investor, your top priority is to turn a profit. So, it is no surprise that after capitalizing on a new investment property, your first question is about your return on investment (ROI). Although you cannot accurately predict the future in any type of business scenario, Investopedia.com<\/em> provides a very simple and basic formula to calculate ROI on an investment property.<\/p>\n\n\n\n

Continue reading to learn how to use this formula to determine commercial real estate return on investment, and who to call for Indiana commercial construction and general contracting services you can trust.<\/p>\n\n\n\n

\"Indianapolis
Indianapolis Indiana Commercial Construction and Remodeling 317-253-0531<\/figcaption><\/figure>\n\n\n\n

Calculating Investment Property ROI<\/strong><\/h1>\n\n\n\n

According to Investopedia.com<\/a>, you can find your return on investment by using this uncomplicated formula:<\/p>\n\n\n\n

ROI = (INVESTMENT PROFIT \u2013 INVESTMENT COST)\/INVESTMENT COST<\/strong>
Return on investment = investment profit minus investment costs, divided by investment cost.<\/em><\/p>\n\n\n\n

Keep in mind that this calculation is not as straightforward as it appears. There are several other variables involved that ultimately generate these numbers, such as interest borrowed, financing details, facility maintenance, renovations, repairs, and similar expenditures. Investopedia.com<\/em> maintains that in most cases, lower investment costs tend to render higher ROI\u2019s, however, financing terms can also play a role in improving one\u2019s return on investment. For this reason, it is vital that you do your due diligence as a commercial proprietor or real estate developer and find the best possible interest rates.<\/p>\n\n\n\n

ROI Calculation Approaches<\/strong><\/h2>\n\n\n\n

There are two best practices for calculating ROI. The first approach is referred to as the cost method<\/em>. The second approach is referred to the out-of-pocket method<\/em>.<\/p>\n\n\n\n

\u25ba COST METHOD \u2013<\/strong> Using this method, you would divide your equity by the total investment cost, including procurement, renovations, and maintenance. For instance, if you purchase a property for $200,000, then spend an additional $100,000 on renovations, and as a result your investment properties value increases to $400,000, your equity position as an investor would be $100,000.<\/p>\n\n\n\n

400,000 \u2013 (200,000 + 100,000) = $100,000<\/strong>
ROI would be .33%, which you get by dividing $100,000 by $300,000.<\/p>\n\n\n\n

\u25ba OUT-OF-POCKET METHOD \u2013<\/strong> Most real estate developers use the out-of-pocket method to calculate ROI. If you use a loan to pay for the down payment of your investment property, it can render higher return on investment results under this cost approach. Using the same example as above, here is how ROI would look with a $40,000 out-of-pocket loan for a down payment:<\/p>\n\n\n\n

$40,000 Loan + $100,000 Renovation = $140,000
$400,000 – $140,000 = $260,000 Investor Equity<\/strong>
ROI would be .65%, which is more than double the cost method.<\/p>\n\n\n\n

As a commercial real estate developer or proprietor, you will mainly focus on the internal rate of return (IRR) for your property, which is basically your property\u2019s cash flow and equity put together. Talk to in Indianapolis Indiana commercial general contractor for personalized advice on how to get the highest return on investment through strategic design build and commercial renovations.<\/p>\n\n\n\n

Are you ready to speak with a specialized Indiana commercial contracting company about increasing your property\u2019s value?<\/strong> Contact BAF Corporation<\/a> at 317-253-0531 for trusted commercial construction remodeling in Indianapolis Indiana<\/a>.<\/p>\n\n\n\n

You Should Also Read:<\/strong><\/p>\n\n\n\n

Why is Commercial Real Estate Market Space Listed as Class A, B or C?<\/a>
Top Commercial Real Estate Technology Trends Today<\/a>
Key Points That Should Be Included in a Remodeling Contract<\/a><\/p>\n\n\n\n

\"Indianapolis<\/a>
Contact Us Today 317-253-0531<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"

As a commercial real estate investor, your top priority is to turn a profit. So, it is no surprise that after capitalizing on a new investment property, your first question is about your return on investment (ROI). Although you cannot … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":651,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,329],"tags":[644,649,646,574,642,641,647,643,648],"class_list":["post-650","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-construction","category-commercial-remodeling","tag-calculate-roi","tag-commercial-construction-indiana","tag-commercial-property-roi","tag-commercial-remodeling-indianapolis","tag-investment-property-real-estate-roi","tag-real-estate-roi","tag-return-on-investment-calculator","tag-roi-calculator","tag-roi-formula"],"_links":{"self":[{"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/posts\/650","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/comments?post=650"}],"version-history":[{"count":1,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/posts\/650\/revisions"}],"predecessor-version":[{"id":652,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/posts\/650\/revisions\/652"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/media\/651"}],"wp:attachment":[{"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/media?parent=650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/categories?post=650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bafcorp.com\/blog\/wp-json\/wp\/v2\/tags?post=650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}