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Direct return on equity

Another type of calculation, direct return on equity, can also be used to assess the profitability of an investment such as that proposed. Its formula is as follows:

Direct return = (rent – charges – interest) / equity

This method enables to control the impact of various variables, such as rental status (occupancy rate), charges and mortgage rate fluctuations, which over time can be adjusted by several dozen of base points.

When you analyse this table from another point of view, the net profit after taxation (taking into account a constant rate for this example), unlike the net return, grows if the investor injects more equity into a property transaction. Accordingly, the prospective or current owner has to decide whether a real property serves them as an investment, as it would otherwise be the case with investing into securities, or their intention is to generate additional income that will allow them to satisfy their need to reduce activities, annuities or whatever.