Morris Invest: How to Calculate ROI on a Real Estate Investment
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Morris Invest: How to Calculate ROI on a Real Estate Investment


100 Comments

  • Michael Candelaria

    That is for Rental Income, how do you calculate ROI on Properties that are Non-Income Cash flow properties? Such as an ROI for an Investor of a Property such as a All cash Investor Buyer Sale ROI?

  • Priya John

    Hi Clayton, would the 40% be inclusive of property management services that has a service fee of one month's rent?

  • John Doe

    Excuse my sarcasm but I think this must be something that only in America is possible where normal people meet very dumb people. No offense, but pls explain to me: WHO PAYS $700 rent for a $40.000 house instead of buying it themselves? The rent is beyond any normal credit cost so why would anyone pay that much for such a cheap house? To me any GROSS ROI above 10% in all real estates i found online sounds like total fiction.

  • Jeffy Tood

    House burns down bad wiring you get sued and lose everything end up in a chapter 7 all the nursing homes going to love you

  • Nicolas-Ocarina Personal Channel

    I love the info in this video. However I think the 40% is a bit misleading. Isn’t it true that when you’re buying a 40k home you have some repairs if it’s in heavy condition? The 40% gives you less than 4K for rehab not to mention taxes and vacancies. Unless in this example the house is ready to rent at purchase this example doesn’t fit into calculations. Maybe a better example would be to include rehab budget into ROI even if rehabbing is done with a line of credit and paid overtime.

  • Joe Briggs

    At what point is cash on cash ROI better than…..getting more money back than I put in the house, on my cash out refi?

  • Nate B-RunS

    You have great vids, only thing I have never seen you cover on any of them is the amount of time it takes to truely start getting return on investment. For a 40k home with a 5k profit a year that will take you 8 years to break even. After your 8 years then you will begin to profit. Correct?

  • Andy x

    Can someone tell me where Morris buys his properties. I have watched a few of his videos now, and I just cna't figure out where a property that costs 40K-50K can cash flow $700 or even $300.

  • Checkdacontract Now

    I love this video. It couldn't have been better explained. I'm creating an excel spreadsheet with this formula to include rehab cost, so I can use this for my next project. Thank you

  • Greg Woodworth

    I'm not from the states, so I don't know your property market.
    Can you seriously buy a $40,000 property and rent it for $700 a month?
    Nowhere in the UK am I going to find a £40k house and rent it for £700 a month

  • Kwame Barton

    Excellent formula from a cash buyer point of view. I'll be sure to adopt this formula. Question? Have you written any books on RE investing?

  • Timmy Leonard

    Would you use the same calculation for a turn key property, or nearly turn key? I’m finding most of the property’s I’m finding are more in the area of 7 to 9%.

  • Óscar Ferreira

    I am sorry but, 40% is not that conservative at all. The 50% rule is more, and many times monthly expenses go over that.

  • Jason Magill

    Can some1 help me with this please? I have done this with many homes trying to find 1 to buy for renting it out and I finally found 1 that is for sale for $61000 and rents for about %825 monthly so using this formula my Net ROI comes out to be 9.7% wich I don't think is bad. I am just very confused because I will be using a 30y loan and then just trying to pay it off as quick as I can but this will be my first rental property. Am I doing something wrong? Or am I on the right track? Please Help

  • Economic Agent

    Wouldn't cash-on-cash return include the rehab cost into the total cash investment? Let's say $40k purchase price + $15k rehab = $55k total cash investment.

  • MoneyManFernando

    So using your formula if the typical 3 bed. 2 bath house in my area sells for $250,000 and the average rent is $ 1,400 a month there is no way it would make financial sense to buy a house to rent out.

  • Lisa Lisa

    Hi, I know this is an older video, but in your 40% is that including everything, ie: mortgage, taxes, rehab, vac rate. Insurances, PM… etc?

  • Ahmet Ali

    Hi. Do you provide a complete package for UK residents?
    (You select property that match 10-12% roi like this video example, renovate as much as required, find tenants and property management)
    For a fee of course and on going management fees.

  • Lowell Dizon

    Excellent content on your videos! In your experience, what would be the absolute price limit you would spend for a rental property?

  • 5ko

    this doesn't work in my country. you cannot get 700$ rent on 40k house. maybe 400-500$. and why you didn't count the renovation? is it the 40k home including the renovation? are you kidding me?

  • Jarrod Frankum

    What about the mortgage payment? Are you buying these houses all cash? If the rent is 700 per month, I don't see how you can consider it as return since a heavy portion of that will in fact be mortgage

  • Paul Romero

    Thank you so much for explaining ROI step by step on the white board!! I understand it now! You have another video that I saw concerning ROI and it was a bit confusing for me!! I am new at this and I need step by step coaching!!! BTW, I really love your other videos because they are so informative!! I also really like the videos with you and your wife! I hope someday I can invest in properties so I can give my children a better way of life. But I have lots of reading and research to do and I have to tell you that Morris Invest really motivates me!! Thank you!!

  • LoverOfPhotography

    What should I do if my market has a very high buyer market and only young people rent? A 3 bedroom, 1 bathroom, 1 car garage and small garden house would cost around 250.000$, which gets around 800$ a month rent over here. Actual costs and taxes are around 18% total (experience). So 7900$/year on a 250.000 investement is pretty bad imo. Because it's a buyers market, house prices are going up 5% each year if you buy right, so as a total investment, it's not bad, but I'm very undecided on these kinds of numbers. Most of our properties have been in the family, but I don't know if I want to make the porfolio bigger in these kinds of markets. I don't want to buy anything even more than 10 miles away from the other properties to keep management manageable. Please advise.

  • Chris Redden

    Hi there. Isn't it possible that roi increases over time. For example, say that I buy a duplex, and i put a tennant in one half and live in the other half. Then eventually I move out and rent both halves. Wouldn't my roi go up drastically after that second tennant was placed. Is there a difference between roi in the long and short term. Would love an answer on this. Thanks!

  • zachgera

    If you could answer this question it would be very helpful. How much percentage should I add to the 40% if you were to get a mortgage.(roughly)

  • Chips O'Toole

    I'm bought a rental in Australia. A cheap 2 b/r house at 225k. Rent is $260 p/w. I get roughly 3.1% net ROI. And that's better than most people get in Australia.
    You guys are easily killing it over there. Now I'm wondering if I can invest in USA.

  • Anthony Tucciariello

    That seems like such a sloppy way of calculating ROI. Most expenses are not a function of gross income. So, estimating all expenses as 40% of gross income is completely arbitrary. And, some expenses are known, thus need no estimation (e.g., taxes and insurance). So, why wouldn’t you use the true figures in your ROI calculation? Better to do that and estimate only more nuanced expenses such as vacancy and maintenance. That method will yield a much more accurate ROI.

    Also, how is it possible that “when you look at your statements at the end of the year” your net ROI usually ends up right around the same as what your gross ROI was? You paid no property tax, no insurance, performed no maintenance, and had no vacancy? Nonsense.

  • Queen Moore

    Do I need to set up my LLC before setting up a consultation with Morris Invest? What back end work do I need to complete before going to Morris to invest in my first peoperties?

  • David

    I realize this is an older video but I just wanted to say thanks anyway for the information. New subscriber here who is interested in taking that first step (hopefully this year) towards that first asset.

    I'm curious about your business model in terms of helping investors (newbie investors) acquire their first property through your company. Is the only way to get specific details about how the process works done through calling and setting up a consultation over the phone?

    Thanks!

  • springin2tri

    The problem with the ROI defining the time period and the costs calculated. See the comments from Calculator.net below.
    Difficulty in Usage
    "It is true that ROI as a metric can be utilized to gauge the profitability of mostly anything. However, its universal applicability is also the reason why it tends to be difficult to use properly. While the ROI formula itself may be simple, the real problem comes from people not understanding how to arrive at the correct definition for 'cost' and/or 'gain', or the variability involved. For instance, for a potential real estate property, investor A might calculate the ROI involving capital expenditure, taxes, and insurance, while investor B might only use the purchase price. For a potential stock, investor A might calculate ROI including taxes on capital gains, while investor B may not. Also, does an ROI calculation involve every cash flow in the middle other than the first and the last? Different investors use ROI differently.

    However, the biggest nuance with ROI is that there is no timeframe involved. Take for instance, an investor with an investment decision between a diamond with a ROI of 1,000% or a piece of land with an ROI of 50%. Right off the bat, the diamond seems like the no brainer, but is it truly if the ROI is calculated over 50 years for the diamond as opposed to the land's ROI calculated over several months? This is why ROI does its job well as a base for evaluating investments, but it is essential to supplement it further with other, more accurate measures.

    Annualized ROI
    The ROI Calculator includes an Investment Time input to hurdle this weakness by using something called the annualized ROI, which is a rate normally more meaningful for comparison. When comparing the results of two calculations computed with the calculator, oftentimes, the annualized ROI figure is more useful than the ROI figure; the diamond versus land comparison above is a good example of why".

  • adele morales

    Hello, your videos are really informative and motivating. I would like to know if gas and water are already included in rent price.

  • J S

    Thanks for your vids. I've learned a lot. Also, thanks for not flashing some stupid over priced car in my face making me feel pathetic about my own car. lol

  • Scott Walstead

    Where are you able to find such good gross ROIs in the US? Buffalo NY is the best I could find, looks to be an average of 15% gross ROI. My guess is you probably have to look pretty hard to find those deals and it's a difficult time to find them with historically low interest rates

  • Roscoe Pumpernickel

    Not sure how realistic your investment property is. Where are there $40000 homes that can rent for $700/mo. Of course your ROI is going to be high. I would recommend using a more factual approach. Let’s say a $235000 rental with $1300/mo rent. That’s close to a 4% ROI.

  • Santos Marquez

    Clayton, could you use this same formula for a mortgage that you've been already been paying down? Another words can I use this formula every yr for the current principal balance w/my rentals on that property? Or do I have to use the original sale price?

    Thanks Clayton!

  • Edgar Campos

    Is 40k just for the purchase of the home? If so, you don’t calculate your rehab repairs since it’s money invested?

  • jdjewellpa

    I gotta say. This video would have been absolutely perfect, if it started out like in buying a home in real life. THEY ALL need some sort of rehab, especially the low lost homes. Would have been really nice from start to finish to include the rehab costs then break down the formulas to show ROI. Again, real life scenario. Can anyone point me in that direction? Been searching and every video either sucks completely or leaves bits of information out so I never get the complete soup to nuts picture.

  • kenroy larmond

    $40,000? That's cheap, no way I could find a €40,000 house here in Belgium. Those aren't brick houses right?

  • Nick Marrone

    I love the math and the video, however, where are you able to find a $40,000 property that you can rent for $700 a month? Those numbers seem extremely unrealistic in any market in North America. I do understand this video is from 2017 which may clear things up a little, but that rent rate still appears to be a dream come true for a real estate investor. Thanks for the knowledge and I would love to see some comments.

  • Edgar Pholafudi

    Hi Clayton, if I buy a property that cost R400000 which is about $29000 and my ROI is 6% is it good or bad? Edgar from South Africa 🇿🇦

  • Brad Pietrzak

    Why do you use 40 percent, i heard to use 50 percent.

    What is your reason for choosing 40 vs 50.
    I like 40 more of course but am curious

  • Agent JR Ewing

    Hello Clayton, do you have videos (don’t see from the list) on how to figure out what a rental should rent for to support your ROI formula? Thanks

  • Khent Saludo

    Sir how did you come up with the 40% allowances for tax, vacancies, etc…? It is merely base on assumption? Thank You very much sir.

  • Walter Ben

    Hi Clayton, another very good video… I would like to ask you on that example o 40% Would that include Mortgage and property insurance as well or just maintenance and other items ?

  • Code Blue

    Net is 12%, but what about the mortgage? Why don't you subtract that from the income? Wouldn't the net be after mortgage too?

  • Beautiful Angels

    Hi,
    I wanted to know if someone wishes to earn a net cash flow of $1000 per month, how much should they purchase a house from your company for?
    And the same question applies for $2000 per month.

  • Mike Hamner

    Thanks Clayton. Could you do a video incorporating ROI combined with tax advantages for a Total Return and IRR? The 12% you are using jumps up when those elements are considered. Thanks.

  • Mo Sylla

    Does the ROI apply for a sfr where there is no rental income?? I know you brushed on it,but you did not elaborate.

  • Amandaxanime

    What if 7% roi is $1000 a month net? Am I really going to say no to 1k a month cuz it’s not between 10-12% !?

  • P Maitra

    Please do a video how you would report taxes for money that comes in or goes out in January for things that occurred in December.

  • Billy Harris

    Great presentation,… I am a Realtor in Florida and share your video with some new investors I have.

    Thank you for sharing…!

  • Hilda Hernandez

    If you bought a 40k house with out need of repairs i doubt you will be able to rent for 700dlls ,but your explanation was right on ,very useful, so what % of ROI is not good business?

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