Predicting The Return On Investment Of Your Denver Home

Predicting The Return On Investment Of Your Denver Home

If you are an Denver homeowner (or about to become one), you’ll be interested in the progression of your Castle Rock  Centennial   Cherry Hills Village or Greenwood Village   home’s value over time. The market may fluctuate, but what doesn’t is your goal of seeing your property value go up — in other words, calculating its Return on Investment. In economic terms, evaluating the projected ROI tells you how much profit there would be if the home is sold at a later time.

 
There are two major methods of calculating real estate ROI. Both take cost and appreciation into account — but they come up with quite different answers!

The Cost Method gives a smaller ROI. Consider buying an Denver house for $100,000. Ubiquitous Zillow (the Internet giant) pegs the current annual appreciation rate for real estate in the U.S. at 6%. If our  Castle Rock   Centennial   Cherry Hills Village   Greenwood Village   market proves true to that projection, the example Castle Rock  Centennial  Cherry Hills Village  or Greenwood Village  home value would register $106,000 after the first year. If $2,000 were spent on repairs, that means a $4,000 profit would result, and the ROI for that one year would be $4,000 divided by $102,000: 3.9%. At that ROI, it would take roughly 26 (100 divided by 3.9) years to equal the cost of the home.

Sometimes called the “Out of Pocket” method, this calculation yields a higher ROI. Here, ROI is calculated based on the size of the down payment (assuming a mortgage is involved). Take the same example: the Castle Rock  Centennial Cherry Hills Village  Greenwood Village    home valued at $100,000. You won’t actually pay that whole amount — just the down payment (say, $20,000). To evaluate the ROI, the down payment is added to the repair costs ($20,000+$2,000) and that number is subtracted from the appreciated home value ($106,000-$22,000). The “equity” in this case is $84,000, so the ROI in that single year is $84,000/$106,000 = 79.2%. Although this sounds terrific, it isn’t too realistic…after all, the mortgage left is still owed: it may not be “out of pocket” because it hasn’t been actually paid yet, but the remaining liability is real.

  
If you have Denver  home value questions, I’m here to answer those and any other real estate-related needs. Call me anytime to discuss home values, ROI, or other property questions!

Curious what your home is worth?  Use our FREE online valuation tool 
Click Here !

         Jason Peck is part of the Carr Peck & Associates at Keller Williams. He has been recognized locally and nationally as in expert in real estate. Locally he is 6th in Denver Metro home sales out of 5,000 agents and has been recognized by the Wall Street Journal and Real Trends as one of the top selling agents in America.  He is co-author of the National Best Selling Book, “The New Rise in Real Estate”. For more information feel free to 
contact him  or call 720-446-6301.

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Dated: November 6th 2013
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