The term “return on investment” (ROI) is thrown around a lot, but do you know what it really means and how is it calculated?
Three ways to calculate the ROI
Cash-on-Cash If $ 20,000 is invested and grew to $ 10,000, it is a 50 percent cash-on-cash rate of return that is ideal for wealth building. The total amount of investments if you put $ 20,000 down for a $200,000 mortgage, the growth is happening at $ 200,000, not at what you originally put in. This can be said less relevant cause the amount made on what was originally put in is more important and useful.
The lost opportunity cost if you want to raise money with other people’s money, you need to demonstrate the loss he can calculate if he does not invest. If you have an investment that pay a 20 percent interest and lenders have the money in something that only pays just 5 percent, you have to show him how much he is losing if he passes up your opportunity.
What the rich do that we do not
The rich developed a wealth building niche that allows them a greater rate return on what they do -real estate, investing in the market, your business. Once they earn money, without fail, the richiest of the rich buy bonds, key bills or other types of funds that pay a return of 3 percent to 5 percent. They want to protect their principles. They only roll the dice in the field of expertise where they can expect a safe return.