1. What is ROI in Real Estate?

ROI (Return on Investment) is a performance measure used to evaluate the efficiency of a real estate investment. It compares the profit generated by an investment to its total cost, expressed as a percentage.

2. How the ROI Calculator Works

The calculator uses the basic ROI formula:

Where:

• Net Profit — Total revenue from property (rent, sale) minus all expenses (purchase price, repairs, taxes, etc.)
• Total Investment — All money invested in the property including purchase price, closing costs, renovations, and other expenses

Explanation: The formula shows what percentage return you've earned on your invested capital.

3. Importance of ROI Calculation

Details: ROI helps investors compare different real estate opportunities, assess performance, and make informed decisions about buying, holding, or selling properties.

4. Using the Calculator

Tips: Enter your total net profit (after all expenses) and total investment amount in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI in real estate?
A: Typically 8-12% is considered good, but this varies by market and property type. Higher risk investments should yield higher ROI.

Q2: Does ROI include appreciation?
A: Yes, if you include the property's increased value when calculating net profit. Otherwise, it's just cash-on-cash return.

Q3: How does leverage affect ROI?
A: Using financing (mortgage) can significantly increase ROI since you're investing less of your own money, but also increases risk.

Q4: Should I include my own labor in the investment?
A: For professional investors, yes. For homeowners doing DIY, often not included in standard ROI calculations.

Q5: How does ROI differ from cap rate?
A: Cap rate measures current return based on income, while ROI measures total return over the entire holding period.