HOW TO CALCULATE YOUR ROI IN REAL ESTATE
Before making an investment decision on a property, it is very important to calculate your ROI (return on investment). Hence, your need a real estate expert on your investment team.
This will help you weigh your options, and predict your profit on the investment and also aid your investment success.
ROI = Gain
ROI measures how much money or net profit is made on an investment displayed as a percentage of the cost of that investment. ROI is therefore the percentage interest of investment.
Just as the definition suggests, a mathematical representation for calculating ROI is:
ROI = Current investment value – Initial investment value
Initial investment value
Total investment returns – Total cost of investment
Total cost of investment
To calculate your total cost of investment or initial investment value, do not forget to add up the cost of maintenance if it’s a rental property and mortgage loan/loan in securing the property.
ROI indicates the amount of profit you make, over some time. The percentage could be positive or negative. Indicating that your investment made money, or it could be losing money and be negative.
Negative ROI/losing money can occur for several reasons, including having a high turnover rate or long vacancy periods. When high costs of maintenance do not balance up with rental charges, or selling at an unfavorable period due to urgency. To ensure a profitable ROI, you must actively work on ensuring a steady occupancy rate for rental properties. Keeping up with rental maintenance can also boost ROI over the long term. Having a high-income rate means there is no consistent income and spending more on expenses to find and get tenants. Another way to increasing rental ROI is increasing rent when possible. Increasing rental rates will help investors better manage rising expenses, which can include taxes, insurance, and repairs.