1. What is the ROI Formula?

The ROI (Return On Investment) formula calculates the percentage return on an investment property based on its net operating income and total cost. It helps investors evaluate the profitability of real estate investments.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( NOI \) — Net Operating Income (annual income after expenses)
• \( Cost \) — Total property acquisition cost

Explanation: The formula shows what percentage of the property's cost is returned as profit each year.

3. Importance of ROI Calculation

Details: ROI is a key metric for comparing different investment properties and assessing whether an investment meets financial goals. It helps investors make informed decisions about property purchases.

4. Using the Calculator

Tips: Enter accurate NOI (all income minus operating expenses) and total property cost (purchase price plus any acquisition costs). Both values must be positive numbers.

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 investor goals. Higher risk properties may demand higher ROI.

Q2: Does ROI include mortgage payments?
A: No, NOI doesn't include financing costs. ROI shows property performance before financing.

Q3: How does ROI differ from cap rate?
A: Cap rate uses current market value in denominator, while ROI uses actual purchase price.

Q4: Should I include property taxes in NOI?
A: Yes, property taxes are operating expenses that reduce NOI.

Q5: How often should I calculate ROI?
A: Recalculate annually as income and expenses change, and when considering refinancing or selling.