The goal of investing is to make money, so it’s natural to pursue investments that offer the greatest possible return.
Return on investment, or ROI, is a commonly used profitability ratio that measures the amount of return, or profit, an investment generates relative to its cost. ROI is expressed as a percentage and is extremely useful in evaluating individual investments or competing for investment opportunities.
Buying and owning real estate is an exciting investment strategy that can be both satisfying and lucrative. Unlike other investments, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.
Real estate is overall a great investment option. It can generate ongoing passive income and be a good long-term investment if the value increases over time.
However, you need to make sure you are ready to start investing in real estate that begins with knowing the ins and outs of real estate investments. Today, we will walk you through the meaning and determination of ‘return on investment’. Take a look at
ROI measures how much money or profit is made on investment as a percentage of the cost of the investment. It shows how effectively and efficiently investment Birr is being used to generate profits.
Calculating a meaningful ROI for a residential property can be challenging because calculations can be easily manipulated
Simply defined, ROI measures the efficiency of an investment. It’s calculated by dividing the return you realize from the investment by its cost. The result is expressed as a percentage. Here’s the formula:
(Gain from the investment − Cost of investment) ÷ Cost of investment = ROI
If you buy a property outright with cash, calculating its ROI is equitably straightforward. Here’s an example of a rental property purchased with cash:
- You paid a $300,000 in cash for the rental property.
- You collected $5,000 in rent every month.
A year later:
- You earned $60,000 in rental income for that year.
- Expenses, including the water bill, property taxes, and insurance, totaled $4,000 for the year or $200 per month.
- Your annual return was $54,000 ($60,000 – $4,000).
To calculate the property’s ROI:
- Divide the annual return ($54,400) by the amount of the total investment of $300,000.
- ROI = $54,000 ÷ $300,000 = 0.18 or 18%.
- Your ROI was 18%
- You will be profitable in less than 6 Years
Let us connect today, on Metropolitan Real estate, which has multiple ongoing projects such as Metropolitan Central Tower Luxury Apartments are around AU headquarters. Metropolitan Westview Standard Apartments located at Total Soset kuter Mazoriya. If you are ready to begin your journey on the way to becoming a homeowner, please contact us with the Ethiopian office: +251973404040 and USA office: +1480 280 2242.