This week, I’ll show you a much simple method of calculating your percentage returns using the Internal Rate of Return Formula in your favorite spreadsheet program (but we’ll use Excel for now).
Internal Rate of Return Explained
The Internal Rate of Return formula is actually based of the Net Present Value formula we learned last week. Simply put, it figures out the exact or nearest discount rate that would result in a Net Present Value of zero (0).
What that means is that the percentage rate that result from the formula is the percentage rate of your Return on Investment.
The weakness of this formula is it doesn’t take into account inflation rates, or the rate of loss of purchasing power due to rising prices.
Despite that, this is the simplest method you could use to do a quick analysis of investment returns you may receive.
How to Use this Tool
The spreadsheet is available for a quick download just below this post, and the instructions on how to use it are also included. Just to give you a quick overview though, I’ll describe here the inputs/numbers you’ll need to make this work for your condo investment calculations.
Note that this worksheet assumes that you would sell the investment property within five (5) years from purchase. Should you need a longer period, you can customize the worksheet on your own or you could ask me for some computations, too. Just contact me via the contact form and I’ll see what I can do to help.
- Purchase Price – the total cash you will invest to get the property registered under your name. This should include the taxes.
- Monthly Income – you would need to input the total income per condo investment that you have. This would mean the rental income.
- Contracted rate increase per year –the agreed annual percentage increase in the lease contract you will have with your tenants. Make a reasonable estimate of this rate.
- Estimated rate of price increase per year – you could get this data from me, but price increases in the Makati area are about 9% to 13% per year, depending on the area.
Armed with these numbers, you’ll be able to determine how much you’re going to make in your condo investment.
Looking for more investments? Just click here and let’s talk about how I could help you out in finding the right investments.
Condominiums for Sale: Three Central, Two Central, Salcedo Skysuites, Greenbelt Hamilton and Paseo heights.
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Related Blog Post
- How to Measure Your Profit from A Condo Investment Using the Net Present Value Method
- How to Compute your Regular Condo Payments When the Bank Loan Kick in
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