I just watched this video: https://youtu.be/_rY0L6ohnaw and if I understood it correctly, to get your ROI you first calculate your “profit”.
This is basically your income (rent, discount, appreciation and principal reduction) minus all your expenses (debt service i.e. principal + interest, insurance, maintenance, vacancies etc).
You then take your “profit” and deduct all costs it took to make the deal happen – i.e. all upfront costs including down payment, bank admin fees, land registry etc.
Then you take that figure and divide it by your upfront costs – then you have your total ROI. You divide that by the number of years you’ve made the above calculations (eg you have averaged your figures for holding the property for 5 years – so you divide by 5) and then you’re left with your annual ROI.
Did I understand him correctly? And if yes is this an accurate method or is there anything significant it does not account for?
Thanks very much for any guidance on this and for your patience with a first timer.