The initial investment in a real estate venture plays a crucial role in determining its profitability. It serves as the base for calculating various metrics that investors use to evaluate the potential return on investment (ROI). For instance, the Internal Rate of Return (IRR) is a metric that provides the expected annual return on an investment. It's important to compare the IRR with the initial investment to ensure that it is higher than the initial amount put in. Other metrics like Cash-on-cash yield and Liquid-on-cash yield also depend on the initial investment. Therefore, the initial investment is a key factor in assessing the profitability of a real estate investment.
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