1. What is ROI in Real Estate?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. For rental properties, it compares the net income generated by the property to the total amount invested.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Income} \) — Rental income minus all expenses (USD/year)
• \( \text{Investment Cost} \) — Total amount invested in the property (USD)

Explanation: The formula calculates what percentage of your investment you're earning back each year through rental income after expenses.

3. Importance of ROI Calculation

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

4. Using the Calculator

Tips: Enter accurate rental income (gross annual rent), all property expenses (taxes, insurance, maintenance, etc.), and the total amount invested in the property (purchase price plus any renovation costs).

5. Frequently Asked Questions (FAQ)

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

Q2: Should I include mortgage payments in expenses?
A: For cash flow calculations, yes. For ROI, typically only interest (not principal) is included as an expense.

Q3: How does appreciation factor into ROI?
A: This calculator shows cash-on-cash ROI. Total ROI would also include property appreciation, which requires a more complex calculation.

Q4: What expenses should be included?
A: Include all operating expenses - property taxes, insurance, maintenance, repairs, property management fees, vacancies, and utilities (if paid by owner).

Q5: How does ROI differ from capitalization rate?
A: Cap rate is similar but uses net operating income (before financing) divided by property value, while ROI uses net income after all expenses divided by total investment.