ROI, the Return on Investment is one of the major metrics that plays an important role in real estate investment. It helps in gauging the performance of real estate investment. The bigger ROI means the project is likely to attract many investors.
What is ROI?
The measurement of the profit yield by a particular investment in a set time period is known as the Return on Investment (ROI). It is calculated and represented as a percentage of the total investment cost.
If you are a real estate investor or looking forward to making real estate investments in the future, you should be eager to find out your capital gains. Today we are going to guide you about how you can calculate the ROI against your real estate investment.
What’s THE EASY WAY TO CALCULATE ROI?
Before we begin our guide on Return on Investment in real estate, let us precisely focus on the term again.
THE RETURN ON INVESTMENT (ROI)
Return on Investment (ROI) is a widely used accounting terminology in different business and investment fields. It summarizes the amount of profit that may be the outcome of an investment over a certain period. The ROI is always indicated as the percentage of investment money that has been regained after deducting all associated costs.
FORMULA OF CALCULATING RETURN ON INVESTMENT (ROI) OF YOUR PROPERTY
You can simply calculate the ROI through the below-mentioned formula.
ROI = (Investment Gains – Initial Investment Costs) / Total Cost
Initially, you need to minus the starting amount of your investment from the final value of the investment which is represented as “Investment Gains” in the formula. Then you need to divide the result with ‘Total Investment Cost’, which is your initial investment with the addition of the expense you bore.
Despite the fact that the formula mentioned above is quite simple, but you need to carefully consider certain cost factors while calculating your real estate’s ROI. These cost factors may include repairing and maintenance costs as well as the amount of money (including interest if it’s a loan) you may have borrowed for investment. All these costs will have a significant impact on ROI in real estate investments.
HOW DO I KNOW IF MY ROI IS GOOD?
In real estate investment, investors and stakeholders consider a good ROI if it’s anything above 8%. However, we recommend our readers to always aim high. Your goal should be more than 10 or 12 percent, with all the budget-busters and expenses in mind.
That’s the reason why ROI is one of the major factors that has the tendency to make or break a real estate investment. Investors determine the outcome of investment opportunities based on these ROI values.
IMPORTANT FACTORS FOR PROPERTY VALUE
Here are some important factors you need to consider when aiming for a good ROI while making a real estate investment.
Location: Location is the first and the most important factor to consider about any specific real estate project. The location of the project should be well connected to the major network of roads of the metropolitan area. Investment opportunities near the city center are always recommended to gain high capital returns.
Condition: Condition is another factor that can impact your cost. Like, if you’re purchasing a property in bad condition, your repair and maintenance costs will go up. Therefore, if your budget allows, always purchase property that is in good or at least in reasonable condition.
Market Value: There are many factors that control the market value of a property. These factors may include occupancy rate, fluctuation in graphs of demand and supply, and legal standing of the project. All these factors can directly impact the real estate value of a particular area. Therefore, always do your proper research before making a real estate investment. You can always check our updated prices list and latest blogs to keep yourself aware of the top-performing areas of the city.
That’s how you can calculate the Return on Investment (ROI) in real estate for your investment. It will help you measure the performance of any real estate investment opportunity. We hope you find our today’s guide useful for your future investments.