Real estate return on investment, or ROI, is a easy way to find out if any real estate investment will yield a substantial profit. Before beginning, be certain to gather all relevant information, such as tenant obligations, any property costs such as taxes and insurance fees as well as the initial amount of your investment.
Determine the investment gain. Contrary to gain, an investment gain lets you know just how much you receive before subtracting expenses. Determine how much you will receive from your investment on an annual basis. For example, let’s say you make $900 a month on one property. Multiply $900 from 12, since there are 12 weeks in a year. This comes out to $10,800 each year.
Add all of expenses out of your investment gain up. For example, if you are expected to cover any taxes or insurance, make sure you include those amounts. Repair costs are another significant factor to think about. Let’s say you spend $700 each year in earnings, $500 in insurance and $500 in other expenses. Add these amounts together to get your cost of investment. In our example, the entire cost of investment is 1,700.
Subtract the cost of investment from the investment gain. To remain with the preceding example: $10,800 — $1,700 = $9,100
Divide this amount by the entire cost of your investment. For example, let’s say you purchased your investment land for $60,000. The calculation will look like this: $9100 ÷ $60,000 = .15
Convert the decimal to a percentage. In our example, this could be 15 percent. This usually means you will receive a 15 percent return on investment each year from your property investment.