Build Up Rate Calculator

The build up rate, or equity build up rate, is an important metric for property investors. It is calculated as the ratio of the mortgage principal paid in the first year to the initial cash invested in that same year. Investors use this metric to analyze the effectiveness of their investment.

Build Up Rate Formula

The formula to calculate the build up rate is:

\[ \text{Build Up Rate (BUR)} = \frac{\text{Mortgage Principal Paid in Year 1 (MPP)}}{\text{Initial Cash Invested in Year 1 (ICI)}} \]

Example Calculation

If $15,000 was paid toward the mortgage principal in year 1, and $50,000 was initially invested in the property, the build up rate would be:

\[ BUR = \frac{15000}{50000} = 0.3 \]

This means that 30% of the initial cash invested was built up as equity in the first year.

Importance of Build Up Rate

Understanding the build up rate helps investors gauge how quickly their equity in a property is increasing. Higher build up rates indicate better equity accumulation relative to the initial cash investment.

Common FAQs

1. What does a high build up rate indicate?

   • A high build up rate suggests that a larger portion of the initial cash investment is being converted into property equity in the first year, which is beneficial for long-term profitability.

2. How can I improve my build up rate?

   • To improve the build up rate, investors might consider making extra payments toward the principal, choosing a shorter loan term, or investing in properties with better appreciation potential.

This calculator can help both new and seasoned investors evaluate their real estate investments more effectively.