1. What is Real Estate ROI?

ROI (Return on Investment) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. In real estate, it helps investors determine how profitable a property is relative to its cost.

2. How Does the Calculator Work?

The calculator uses the basic ROI formula:

Where:

• \( Gain \) — Final value of the investment (including rental income, appreciation, etc.)
• \( Cost \) — Initial cost of the investment (purchase price plus any renovation costs)

Explanation: The formula calculates the percentage return relative to the initial investment cost.

3. Importance of ROI Calculation

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

4. Using the Calculator

Tips: Enter the total gain (final value including any income) and the total cost (initial investment). Both values should be in the same currency. Cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good ROI in real estate?
A: Typically, a good ROI is 8-12% or higher, but this varies by market, property type, and investment strategy.

Q2: Should I include rental income in the gain?
A: Yes, for rental properties, gain should include both property appreciation and cumulative rental income minus expenses.

Q3: How does this differ from cap rate?
A: Cap rate only considers first-year net operating income, while ROI looks at total return over the entire holding period.

Q4: What costs should be included?
A: Include purchase price, closing costs, renovation expenses, and any other direct costs associated with the investment.

Q5: Can ROI be negative?
A: Yes, if the final value is less than the total investment, ROI will be negative, indicating a loss.