1. What is Return on Investment (ROI)?

Return on Investment (ROI) 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 the profitability of rental properties.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Income} \) — Annual rental income minus expenses ($)
• \( \text{Investment} \) — Total amount invested in the property ($)

Explanation: The formula calculates what percentage return you're making on your real estate investment each year.

3. Importance of ROI Calculation

Details: Calculating ROI helps real estate investors compare different investment opportunities, assess property performance, and make informed buying decisions.

4. Using the Calculator

Tips: Enter your net annual rental income (after expenses) and total investment amount (purchase price plus any renovation costs). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental properties?
A: Generally, 8-12% is considered good, but this varies by market and property type.

Q2: Should I include mortgage payments in the calculation?
A: For simple ROI, yes. For cash-on-cash return, only include the down payment in the investment.

Q3: What expenses should be deducted from rental income?
A: Include property taxes, insurance, maintenance, vacancies, property management, and repairs.

Q4: How does this differ from cap rate?
A: Cap rate doesn't include financing costs, while ROI typically does.

Q5: Should I consider appreciation in ROI?
A: Basic ROI doesn't include appreciation, but you can create a more comprehensive analysis that does.