1. What is ROI in Real Estate?

ROI (Return on Investment) measures the profitability of a rental property investment by comparing the net income generated to the total investment cost. It helps investors evaluate and compare different investment opportunities.

2. How Does the Calculator Work?

The calculator uses the basic ROI formula:

Where:

• \( \text{Net Income} \) — Annual rental income minus all expenses (mortgage, taxes, maintenance, etc.)
• \( \text{Investment Cost} \) — Total initial investment including purchase price, renovations, and closing costs

Explanation: The formula shows what percentage return you're earning on your invested capital each year.

3. Importance of ROI Calculation

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

4. Using the Calculator

Tips: Enter accurate net income (after all expenses) and total investment cost. Both values must be positive numbers, with investment cost greater than zero.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I include mortgage principal payments in expenses?
A: No, only include interest payments. Principal payments build equity and aren't an expense.

Q3: How does this differ from cash-on-cash return?
A: Cash-on-cash return only considers actual cash invested (down payment), while ROI considers total property value.

Q4: Should I include potential appreciation?
A: This calculator focuses on cash flow ROI. For total return, you'd need to factor in appreciation separately.

Q5: How often should I recalculate ROI?
A: Recalculate annually or when significant changes occur (rent increases, major repairs, refinancing).