CARMAP Compounded Annual ROI explained
The CA+RMAP ROI Definition and formula
There are many ways to calculate the rate of return (ROI) on an investment. What is being used in CARMAP is so-called “Compounded Annual ROI”. Here is its definition:
In a 5-year time span, comparing to the total dollar values invested into CARMAP service (represented by X), what is the Net profit the investor (landlord) can gain (Represented by Y) in the expression of compounded annual rate of return (ROI)? The formula of the calculation is as follows
Y = X*(1+ROI)^5 where,
Y – the actual gain or loss obtained by having A+ tenants, in $.
X – the investment put in to attract the A+ tenants, in $.
ROI – Compound annual return rate, in %.
This is actually the most commonly used standard formula to calculate the ROI, and should be used equally to make the comparisons in between different investment options in order to draw a meaningful conclusion.
What is a typical ROI delivered by CARMAP service?
As you may have learned, one of the biggest strengths CARMAP service delivers is to bring in “undercurrent cash flow” over the years. Let’s use the same example used in the section called “undercurrent cash flow revealed”, where the rents is $1500.00, by using the carmap service, we brings in A+ tenants who are staying for the next 5 years. Apply the formula above, we have the following:
X = $1800.00 (this is the investment you need for 5-year CARMAP service).
Y = $1500*2*4 = $12,000 ( this is the profits gained through undercurrent cash flow).
12,000 = 1800*(1 + ROI%)^5
ROI can be easily calculated as 46.15%
Therefore, the annual compounded rate of return for CARMAP service is 46.15%.
What about the other 2 scenarios?
In the section of “undercurrent flow”, there are other two options used to make the comparison. With the same process, we can easily calculate the ROI of each as the following:
Scenario 01 – DIY
the cost of renting is seemingly “Zero”, however, if you counter the overall time spent on renting process by the landlord, the equivalent dollar value is easily over thousands ($150 hr * $30.00/hr as an estimation, the total cost is $4500.00, this is also likely being repeated in 5 years. However, for demonstration only, we just use this number to make the point here).
X =$0.00 or 4500.00, ($4500.00 is used in the following calculation)
Each year, the owner is losing $3000.00 or $12000.00 in total.
-12,000 = 4500.00*(1+ROI)^5
ROI in this scenario is -221.68%
In this case, a property manager is used to perform the same thing more or less.
X = $1800*5 = $9000.00 as the property management fee in 5 years.
Y = -$12,000.00
-12000 = 9000* (1+ROI)^5
ROI = -$205.92%
Based on the numbers above, it is not a rocket science to see which one is a better option.