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Real Estate Investment Software Blog

Financial management rate of return (or FMMR) is a return that was conceived (I do believe) by the Commercial Investment Real Estate Institute (CIREI) and is taught to students seeking the CCIM (Certified Commercial Investment Member) designation. So I’ll give the CIREI the credit for the financial management rate of return with the reservation that I might be mistaken and it originated elsewhere. Fair enough.

The cash flow of rental income property is what any investor engaged in real estate investing wants to determine. How much cash (both before taxes and after taxes) will remain after the property’s operating expenses and mortgage payment is deducted from the rental and other income generated by the property? In other words, will the property ultimately produce enough cash during any given year for me to pocket some of it (and perhaps invest it elsewhere) or have to feed into it (out of my personal funds) to keep the property running?

The starting point for any investor making a real estate investment decision is a study of the overall market and supply and demand factors in specific cities and towns. Whether for speculative purposes or part of a long-term strategy, investors are never willing to engage in real estate investing unless the financial climate agrees.

Two calculations often made by appraisers using the income approach to valuate rental property involve the profit margin and break-even ratio. In this article I will explain and show the formulas for both.

There is no such thing as a “no-brainer” in real estate investing; it’s all about the numbers. And when you understand what real estate investing is and are serious enough to do it by the numbers (not by the seat of your pants) then investing in real estate can pay you big dividends; otherwise you lose money or would have to consider yourself lucky.

Real estate investing provides no guarantees. Whereas in some cases real estate investing has made some investors very wealthy, it has also (not unlike any business venture) left many others disillusioned; primarily because it didn’t make them wealthy, and in some unfortunate cases, even lost them money.