1. What is Return On Investment (ROI)?

Return On Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. In real estate, it compares the money you earn on a property to the money you spent on it.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( NOI \) — Net Operating Income (annual rental income minus operating expenses)
• \( Cost \) — Total property acquisition cost (purchase price plus any major renovation costs)

Explanation: The formula calculates what percentage of your investment cost is returned to you each year through net income.

3. Importance of ROI Calculation

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

4. Using the Calculator

Tips: Enter your property's annual net operating income and total acquisition cost. Both values must be positive numbers (cost must be greater than zero).

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI in real estate?
A: Typically 8-12% is considered good, but this varies by market and property type. Higher-risk investments generally demand higher ROI.

Q2: Does ROI include appreciation?
A: This basic calculation only includes cash flow. For total return, you'd need to include projected appreciation and tax benefits.

Q3: How is NOI different from gross income?
A: NOI is gross income minus operating expenses (like taxes, insurance, maintenance) but doesn't include mortgage payments or income taxes.

Q4: Should I include renovation costs?
A: Yes, major renovations that increase property value should be included in the total cost calculation.

Q5: How often should I calculate ROI?
A: Recalculate annually as income and expenses change, and whenever considering new investments.