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Annualized Returns

Super important for short term projects

If you will hold a property for less than one year, it is important to annualize your return. Would you rather make a 20% or a 40% ROI? That’s obvious except when you consider the 20% return in this example was made in 60 days and the 40% return took 200 days. Now which would you rather have?

To calculate this divide 365 by your hold time period (in days). Let’s call this your Multiplier (M). Next, calculate the ROI as normal and then multiply by M. That will give you an annualized return. You will the effective rate of return on each deal that allows you to compare them. 

In this case, Example A is 20% x 6 = 120% annually. Example B is 40% x 1.825 = 73% annually, making the first one the better deal (technically). Once you have this information you might make a different decision. However, either of these are good returns so there may be other considerations, including the likelihood of finding more deals like Example A and other risk factors associated with each. Annualized returns, like the other types of returns do not, of themselves, tell the entire story, but are part of an informed decision-making process.