Calculating Return on Investment

This is very important for any investment. To keep it simple, let me give you an example. Lets say we buy a property that is worth 100,000 euro/sterling. Lets say we put down 10,000 as a deposit and we rent it for 500 per month.


We multiply 500*12= 6000 assuming its rented all year.

We then divide 6000 by 10,000 the amount of money (out of our own pocket) that we paid.

This works out at 0.6 = 60% sounds good right? Not really, we didn't take into account mortgage payments and other expenses. Lets realistically say (at the moment) that a mortgage (with expenses) would cost you 400 euro/Stg per month per 100,000. Now we minus 400 from 500 giving us 100 profit per month (before tax) thats 1200.

1200/10,000 = 12% still ok?Lets divide that again by 12 months making that 1% per month. Not good.

For me, I look for ideally 10% per month, not per year.

I use this calculation for any investment. Ideally i want to be earning about 7 to 10% per month and ideally I want to use the least amount of my own cash as possible.

Let me demonstrate. If we take our example above and we paid 2000 instead of 10,000 as a deposit and we still made 6000 in rent minus our expenses (that gives us 1000), then (1000/2000)*100%)= 50%/12 = 4.16%. per month.

This is a bit more realistic, but whenever you calculate roi, make sure it takes into account all expenses


Graham

New versus Used Machines

If you are starting out, the question is whether to go with a used machine or a new machine. There are pros and cons with each. With a new machine here are the pros

1. warranty (normally just 1 year)
2.  complete manuals and technical support
3. free delivery (usually)
4. Could last longer than a machine bought second hand

So what are the cons?

1. depreciating asset
2. after 1 year you have potentially the same maintenance  issues as a second hand machine
3. Diminished Resale value
4. High cost
5. Longer payback period

How about used machines?

The pros

1.  lower cost to buy
2. quicker payback

The cons

1. Usually no warranties
2. May be difficult to get parts if its an old machine
3. Manuals may be difficult to obtain
4. Could have more maintenance issues in the long run

Personally I prefer to buy used machines of well known brands, because 1. its easier to find parts, 2. usually very reliable, 3.manuals can be easier to come across

A machine I particularly like to use and tends to be very reliable is the sanden vendo drinks machine. I have a few of these machines for sale, if you would like to find out more about these, then please email me.