How to Calculate the Investment Amount - dummies

How to Calculate the Investment Amount

By Stephen L. Nelson

The first step in calculating a return is estimating the amount that you need to invest. Note you will need more than QuickBooks to make this calculation. Your best bet is to use Microsoft Excel. This amount is similar to the check you write to a bank in order to buy a CD.

Suppose that you’re considering the purchase of a new office building. Just to keep everything really simple, suppose that you can buy a building that would house your offices for $350,000. Further suppose that you can finance $300,000 of this purchase with a mortgage from your friendly local bank. However, you also need to pay closing costs that equal $15,000.

The table shows the initial investment that you must make in order to invest in a new office building. The bottom-line amount is $65,000. The table shows how this amount gets calculated.

The formula is pretty simple: The building costs $350,000, and you must pay $15,000 in closing costs. That totals $365,000. The bank, however, will finance $300,000 of this amount. This means that you need to come up with $65,000 out of your own pocket.

Calculating the Investment
Price of building $350,000
Less: Mortgage 300,000
Down payment 50,000
Add: Closing costs 15,000
Total initial investment $65,000

Make sure that you understand why the initial investment, or the first check that you need to write, is $65,000. This is the investment that you make in the building.