Investment Formulas for Rentals
Ever think if your investment property is really going to make you an investment? Profitability index is a method real estate investors use to compare the initial cash required to make the investment to the present value of all its estimated future cash flow benefits.
PI = Present Value of all Future Cash Flows / Initial Cash Investment
4 Easy Steps
- Calculate the total dollar amount
- Designate a discount rate
- Calculate the present value
- Divide the total present value
- 1.0 - achieved desired rate of return exactly
- > 1.0 - exceeded your goal
- < 1.0 - failed to achieve your goal