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 can 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. Which starts 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
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 investment − Cost of investment) ÷ Cost of investment = ROI
If you buy a property outright with cash, calculating its ROI is fairly 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 or $300,000.
- ROI = $54,000 ÷ $300,000 = 0.18 or 18%.
- Your ROI was 18%
- You will be profitable in less than 6 Years
Metropolitan real estate PLC, is an American company, building quality homes in Ethiopia to fulfill the needs of luxury house for sale in Addis Ababa and all of Ethiopia as well