Let's talk "ROI's"

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Have you ever seen an investment property advertised and the headline reads "INVESTORS, TAKE ADVANTAGE OF THIS MASSIVE 10% ROI"? 

Have you ever wondered what the abbreviation "ROI" stands for?

Have you ever wondered how to calculate the ROI of an investment property?

First things first...

What is an ROI?

ROI is an abbreviation that stands for Return on Investment.  When used in Real Estate terminology, this means the percentage return that the investment property is making.

How to calculate the gross ROI

The return on investment can be calculated as either the gross return on investment (being before any expenses for the property are paid for), or calculated as the NET return on investment (being after the expenses for the property have been paid for).

As expenses can vary greatly from property to property (whether it be insurance, rates, repairs & maintenance, etc.), this article is going to explain how to calculate the gross return on investment, being the return on the investment property before any expenses are paid.

Step 1:

You'll need to know the weekly rent being achieved for the property.  Let's say the property is currently being rented for $400 per week...

Step 2:

Multiply the weekly rent by 52 (being the number of weeks in a year)

$400 multiplied by 52 = $20,800

Step 3:

Now that you've calculated the annual rental amount being received for the property, you'll need to divide that number by the purchase price of the property.  Let's say the purchase price for the property is $208,000

20,800 divided by 208,000 = 0.1

Step 4:

Take the figure calculated in step 3 and multiply it by 100

0.1 multiplied by 100 = 10

And there you have it... a gross ROI (return on investment) of 10%