Copyright
© 2007 Joel Teo. All rights reserved.
http://www.realestateinvestment101.info
Determining
what your return on investment is has become a major part of any investment review,
and it should be. No matter what you are investing in, whether it is a savings
account or real estate, stocks or new business ventures, knowing the return on
investment will better help you make important investment decisions. There are
many ways that people calculate the return on their investment, but the annual
percentage yield return on investment calculation is the one that is used the
most.
The first step in the calculation is to figure out
exactly what costs you have into the investment. Are there any upfront costs,
maintenance fees, taxes or other fees, and how much time you have invested. Make
sure that you list all costs, even hidden costs, because these are costs needed
to retain the value of your investment.
Next you have to
calculate or estimate any returns on the investment. How much money will you receive
from the investment, and when will you receive it? List all revenue you will receive
from the investment, whether it is monthly rent for a real estate investment or
dividends for a stock investment.
Now you have to establish
a cost and return timeline. List in chronological order any costs and returns
that you have from the investment Use positive numbers for returns and negative
numbers for costs on the investment. Now the complex formula is applied which
looks like this: APY=final return/initialinvestment^365/days of investment-1.
This basically means that you take the final dollar return amount and divide it
by the initial investment. This number is raised to 365 which has been divided
by the number of days it took you to complete the investment This number is reduced
by one and then divided by one hundred to get the annual percentage yield. This
is your return on investment in a percentage form.
Knowing
how to calculate the return on an investment is an important skill for any investor
who wishes to be succesful. This is a calculation used by investors to compare
various investment methods and choose which methods are right for them. The return
on investment will let an investor compare investments to examine which investment
pays more overall, and has a better return. This allows investors to choose investment
methods that have a higher return, which means a higher profit. This formula is
one that every investor should know and use.
Copyright
© 2007 Joel Teo. All rights reserved.
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