How do we calculate our returns and how do they compare to other investments where we could place our hard-earned nails?
Cash on Cash is the most important measurement. The Reserve by NextHome, a N45m property investment is a good example of a “good deal.” It is quite straightforward to calculate our investment returns, unfortunately few people do this and most end up making poor real estate choices.
Be Smarter – It is surprising how many real estate investors fail to do this simple calculation and build/buy properties with negative cash on cash returns – to their own financial detriment.
See Chart – Using The Reserve built by NextHome in 2014 as a case study, the property (3 units of Terrace Duplexes) generates N600,000 per month in rent and have 15% operating expenses (N90,000) leaving net operating income of N510,000. The property was built using the clients saved up capital so there’s no mortgage payment and thus the owner keeps the whole N510,000 of monthly cash flow or N6,120,000 per year.
Divide that N6,120,000 by the N45,000,000 of cash equity and this property has a first year cash on cash return of 13.6%. This is the second year running and the rental figures have pitched up in the location where this property is built by 20% as well as the general expenses but maintenance cost remains zero.
As a final note, homeowners/property investors will find nice properties deals in posh areas with top-range finishes but offers a very low and poor returns on investment. Avoid those! It is the moderately priced units that have decent cash on cash returns. Hence, “posh properties” are NO winner at most time but moderately priced cash flowing properties are the real prizes! The Reserve by NextHome is a moderately prized investment with steady and positive cashflow.
To help you do better analysis, do the maths on your property and see where you stand!
NextHome Design+Build 
Please what is the different between primary and secondary highways
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