So you want to know how to calculate ROI. That’s smart that’ll help you become a good investor. Hey guys, Kris Krohn here

and today, I’m going to show you exactly how you calculate ROI on a home. You need to

know this math. It is ultimately what determines whether you should buy a

property or skip a property. I got a lot of investors in my group and they’re

like, “Should I do it? Should I not?” You’ve got to have standards and you got to

know how to calculate this number. So grab pen and paper. This is going to

be a very important video. So, in calculating an ROI, let’s just back

up for a second. It stands for Return On Investment. And it basically means if you

put money into something, more than just getting your money out, the question is

how much more am I going to get out? And it is normally calculated in the form of

a percent. For example, if I dropped $100,000 on a property

and it was making me 10% annual return then 10% of a hundred

grand is 10 grand. So, I’d expect to get 10 grand every year. And if it was

consistently that for five years then I might average 10%. I’m going to get

over 5 years a total of 50% back which means I put a hundred grand

in. I get $50,000 back on top of my hundred grand. Now, if that was too

much for you, I just slowed that down, re-watch this part again. What I want to

do is I want to help you know how to calculate this competently. Because

that’s when you’re going to decide. Is this property good? I’m going to pounce or no

it’s not? I’m going to run. Now, I’ve got a tool that’s going to make this a little bit

easier for us today. if you go to my website kriskrohn.com, you’re going to be

able to download my free game plan. And that book was written specifically to

show anyone in any financial situation how to become financially free through

real estate. And what I’ve done is I’ve already gone ahead and downloaded it

onto the laptop here. And it’s called “The Ultimate Real Estate Game Plan”. Now, the

reason why I want to show you this is because I’m going to skip down in this

document and I want to come right here. This is an example of a property that I

purchased and I want you to see that it has a 23.06% average annual return. This is mega-hot real estate guys. Most people

are doing 5 to 8 percent. I’m normally double digits. 15% up to 25% on my deals. And when you look at this, you

could get overwhelmed and say, “Oh my gosh, look at all the numbers there are.” Under

income and expenses, there’s an amount for gross rent, taxes, insurance, H-O-A which

stands for Homeowners Association. Property management, vacancies and

repairs, net operating income and the debt service. Debt service means I have a

mortgage. What does it cost to service that mortgage? On the financials,

you have the net monthly cash flow, the cap rate, cash and

cash-return, principal reduction, appreciation, profits on the sale, ROI and

total capital to reinvest. Now, listen. If you’re watching this and there’s a lot

of foreign language here. What I’m going to do is I’m going to really simplify this for

you because this is a professional document that my team uses when

evaluating the thousands of deals that we buy. So I’m going to skip through a

couple more homes here and I’m going to come all the way though down to… Look at

this one more home here. This one is in Florida and the address is 3127

whispering trails. And then down here, this is a 19.99% ROI. Again, another home that I’m actually buying. My cash on cash for the

year is going to be 7% but I’m going to earn an average of 20% or 19.99% each year. That’s the magic

number on why I know that I am buying this house. It meets my criteria. But

let’s look at the simple math for how you can do this. Check this out. We have

here income expenses equals profits. This is… This… This is the basic math that

you’re really going to do on this and I’m going to break this down for you because

you want to know how to do this on your deals. Income minus expenses equals

profit. And profit is what we’re going to turn into a percentage or in other words,

this is how we’re going to get to the return on investment to know, “Are we

going to do this or not?” So, let me just talk through the 4 income

pieces and the 5 expense pieces and then you’re going to be able to gather this

information and do this calculation on their own so that you can actually go

out there and evaluate deals and know what to pull the trigger on. Okay, first

of all, under income. We need you to know if there’s an equity position that needs

to be tabulated in. Now, equity essentially means it’s worth 220,000, I’m buying it for 200,000. There’s a $20,000 of equity. So, basically if there’s a discount, we want to know

what is that discount? That’s going to factor in to the income. And then when we

subtract out the expenses, it’ll help us understand the profit. So the next one

that you see listed there is the gross rent. Now gross means total. And it says

what is the total amount of rent that I’m actually taking

in. Now, we know that there’s expenses in property management that that goes over

here. We just want to add up all of our equity, we want to add up all of our

gross rents. The third thing that we want to know is what is the principal

reduction? In other words, how much am I going to pay the house off for the time? I’m

always going to calculate my ROI’s with my system over a 5-year period of time. I

might hold the home for 3 years, I might hold up for 7 or 8 years

but it’s going to be somewhere in there. 5 years is important because it’s

going to give me an important average. My rents are going to go up with time. So guess

what? I want to know what rent is this year but I want to know what it is in

year 5. Very similarly, I’m going to pay off very little percentage of the house

in the first year but by the third fourth and fifth year, we’re actually

taking thousands of dollars off the cost of the note. That’s going to factor into

profits. So I need to know what is my principal reduction. And then the last

one that you need to be aware of and need to account for is appreciation. Your

property says, “I sure appreciate you. So I grow in value.” We know that real estate

goes up in value over time. Some areas grow at 1% or 3%. Some at 7%. I purchased

my real estate in the markets that have the highest growth potential. I don’t

count on it but I do account for it because real estate over time is going

to give you some of that money. So, I’m going to take a look at equity, gross, rents,

principal, appreciation. And I’m going to figure them out. And then, once I have

this total number… Let’s just say that for this example that that total number

is $80,000. And then what I have to do is I have to subtract out my expenses

because my income minus my expenses will equal my what? Will equal my profit? Okay,

first expense. There will be taxes every year on the property. You’ll actually

have to come out of pocket and pay taxes. Now, often it’s written into the mortgage.

P-I-T-I. Principal Interest Taxes and Insurance. But you still need to be aware

whether you’ve rolled it in or not that that is an expense. And that whether it’s

in it whether it’s rolled into the mortgage, it’s coming out of your pocket.

The next one, insurance. You buy a house, you better get it insured. If there’s a

mortgage, you have to have it insured. So there’s going to be a cost to your

insurance. We want to deduct that. You might have an H-O-A. I buy a lot of my

homes in really nice neighborhoods. So they have a Homeowner

Association fee. And that’s definitely an expense. Then I’m going to have my

property management. If I’m not doing it myself, if it’s not in my backyard, I got

to pay someone to manage this property. Next, I’ve got my vacancies and repairs.

So, it’s not always going to be rented and there are going to be repairs that come up

with time. And then the last one is what’s called the debt service. I’ll just

put at the top here. The debt service is… I have a mortgage, right? I mean, I’ve got

gross rents coming in but I’ve got to subtract out whatever my monthly payment

is. And I’m going to calculate that over 5 years on average. It’s going to be a

little bit of crunching some numbers. But guys, once you break it all down, you can

do this. I know that you can do this. It’s very, very, simple stuff. So, if I were to

take all this out. And let’s just say at the end of the day that this amount came

to $30,000. 80,000 minus 30,000 is $50,000.

Now, I’m really close to having my ROI. Because now I know my profit. And

all I have to do now is compare my profit to what I put in. If I were to put

in. Let’s just say to make this deal happen, let’s say I did put in $50,000 and let’s just say that after I sold it, I got my fifty grand

back but I made $50,000 more. Over five years, I doubled my money.

I turned 50 grand into 100 grand.

Now, if I take that return, that %100 return and divide it by 5,

5 years, it will say 20% is my average ROI. And that my friends is how we

get to the ROI. So just in summary, you got to know your income, you got to know

your expenses. I figure them over 5 years and add all of that up over the

five-year period of time. I subtract them from each other. I get my gross profit

and then I just got to say, “Well, I got to divide that profit up by the number of

years.” I’m basing this on 5 years. I’m making 10 grand a year.

10 grand on a $50,000 investment is 20% ROI. Friends, sounds complicated. It’s

really not. Practice it. Pull out some… Make up some fake numbers and actually

just practice crunching the numbers. Because when you get out there, you find

a hot deal and you’re like, “Oh my gosh, I’m like I’m getting emotional. This is

it. I’m about to make this deal happen.” There’s… There’s this excitement and

emotion that comes up. Do not act on emotion. You can… You should have

your emotion driving you to become a millionaire. You should have your emotion

invested into this commitment of creating wealth. But don’t allow your

emotion to say, “I think it’s a good deal, buy it.” Do that based on the rationale of

the numbers. When you really should get the most excited… When I get the most

excited about a house is when I get this number. Once I know that number, I am

either all-in or I’m running for the hills and there is ZERO middle ground.

Now, you can learn how to calculate this ROI. And you might be saying, “Well Kris,

could someone help me with this?” And the answer is yes. I mentor people with

this. I can actually help you with this. If you want help evaluating your deals,

finding deals, doing all of that. All you got to do is click the link in the

description below and my team’s going to reach out to you. You can actually go and

read up on our services what we do. I will mentor with you. I will work with

you. I will use my unique skill sets and I possess the tools and the resources to

help you create the wealth that you are looking for. So, if that’s going to be

useful for you, take full advantage of it. If you’re not a subscriber, you’re going to

get a lot of free knowledge and application that way as well. Learn how

to do this stuff with me. Let’s go out there and if we can crush it on your

next real estate deal.

## 18 Comments

## curson curacao

hi kris you tha best !

## jorge martinez

Hey kris I been watching your videos for some time now but I really don’t know where to begin I’m trying to get into the Real State business but don’t know what my first step should be?

Can you Help me?

## Lord Arash

Hi Kris, I’m really frustrated and do not know where to begin since I’m only 16 years old. My dream is to become a great real estate investor/businessman just like you. Please help me brother!, Kind regards Arash

## Nokka Mies

Your channel is blowing..

## Lloyd Loy

Hi Kris my name is lloyd I've been watching your channel for a long time living in Jacksonville Florida l have $7500 in heloc to use what to buy rental property need help on your opinion thanks buddy

## Lucien Gees

👋

## InVeSteeZuS

Awesome 🌠

## Apar Gamer

Your videos are owsome kris

## punit bayad

What your fee and whats the frequency of contact?

## Tom Siem

Can someone explain simply what principle is? I still don't get it

## Kyle Trent

Hello Kris, I have a couple questions. 1: how much do you increase your rent every year? 2: you frequently say you will not purchase a property without at least 15% equity. What if it does not have a 15% equity position, but the ROI is somehow without that much equity a 15-20% ROI? Thank you. Videos are great, keep up the awesome work!

## Fume

Okay so on your income list, you said you got 80k income. What if the expenses are more than 80k or close to 80k. You just added 30k on your expenses because it was less than 80k. You could’ve added 40k 50k or even 60k. How much would it really be in a real life situation.

## Nhlonipho Shembe

Only Those Who Love Math Will Do It. 🙂

## saul santana

I have a question and its been on my mind for a while now, im 21 and buying into my first property now im looking into a $60,000 home it has 4 rooms 1.5 baths now should i buy my first single family home as a rental property or should i live in it for a year as a home then rent it?

## Zoufous Team

Hi Kris. Great presentation! Just a short question. If I have a mortgage (bought an apartment for 50,000 euro) and I am paying 400 euro every month to the bank, however I am receiving 500 euro from my tenant, so i earned (net) only 100 euro per month is that affects my ROI? Because then I have a 0,002% ROI 🙂

## Cherchill Omandam

What are the costs of the expenses if you have a lease option contract?

## iLoveYouDonniel

I'm a little upset that he didn't say "I'm gonna pounce… or I'm gonna bounce".

## Mo Sylla

He took a long winding road. I appreciate the effort to share,but the goal of it is to break it down.Not to overcomplicate it. I am going back to the drawing board. I will come back with a better way to explain this.