Real estate return on investment (ROI) is a measure used to assess the profitability or performance of a real estate investment. It calculates the percentage of return or profit generated on the amount of money invested in a particular property or real estate project. ROI can be calculated by dividing the net profit from the investment by the amount of initial investment and expressing the result as a percentage. The formula is as follows:
ROI = (Net Profit / Initial Investment) x 100
The net profit includes rental income, property appreciation, tax benefits, and any other income generated from the investment, while the initial investment comprises the purchase price, renovation costs, closing costs, and other expenses related to the acquisition of the property. By calculating and comparing ROI, investors can evaluate the potential profitability of different real estate opportunities and make informed decisions.