Question

What is the return to the general partner assuming a one-year investment with the following parameters? Investment amount: $100,000. Exit price: $115,000. Interest only debt at 50% LTV and 6% interest. NOI of $8,000. Preferred equity of $25,000 and a preferred rate of 10% with 25% of profits above a 10% IRR going to the preferred equity.

Answer 1

Return on investment (ROI) is an approximate measure of an investment's profitability.
ROI has a wide range of applications; it can be used to measure the profitability of a stock investment, when deciding whether or not to invest in the purchase of a business, or evaluate the results of a real estate transaction.
ROI is calculated by subtracting the initial value of the investment from the final value of the investment (which equals the net return), then dividing this new number (the net return) by the cost of the investment, and, finally, multiplying it by 100.
ROI is relatively easy to calculate and understand, and its simplicity means that it is a standardized, universal measure of profitability.

One disadvantage of ROI is that it doesn't account for how long an investment is held; so, a profitability measure that incorporates the holding period may be more useful for an investor that wants to compare potential investment

Advantages of Return on Investment (ROI)

The biggest benefit of ROI is that it is a relatively uncomplicated metric; it is easy to calculate and intuitively easy to understand.

The Return on investment can be calculated using formula-

ROI= Net Return on investment/cost of investment*100%

Roi. = $50000/$100,000*100%

​ =$50%