1. What is Return On Equity (ROE) in Real Estate?

Return On Equity (ROE) measures how effectively a real estate investment is using the equity invested to generate profits. It shows the percentage return on the money actually invested in the property.

2. How Does the ROE Calculator Work?

The calculator uses the ROE formula:

Where:

• \( \text{Net Income} \) — Annual profit after all expenses (mortgage, taxes, maintenance, etc.)
• \( \text{Equity Invested} \) — Total cash invested in the property (down payment + improvements)

Explanation: ROE shows what percentage of your invested money you're earning back each year. Higher ROE means better efficiency in using your investment capital.

3. Importance of ROE Calculation

Details: ROE helps investors compare different properties, assess investment performance, and make decisions about whether to hold, improve, or sell a property.

4. Using the Calculator

Tips: Enter net income (annual profit after all expenses) and total equity invested (your cash in the property). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROE in real estate?
A: Generally, 10-15% is good, 15-20% is excellent. However, this varies by market and property type.

Q2: How is ROE different from ROI?
A: ROI considers total property value, while ROE focuses only on the equity portion you actually invested.

Q3: Why does ROE matter more than cash flow?
A: ROE shows how efficiently your money is working. A property might have good cash flow but poor ROE if too much equity is tied up.

Q4: How can I improve my ROE?
A: Increase income, reduce expenses, or use leverage (mortgage) to decrease equity invested while maintaining cash flow.

Q5: Should I sell if ROE drops?
A: Not necessarily - consider appreciation potential, tax benefits, and market conditions before deciding.