The return on investment indicates the money returned to an investor percentage of after associated costs are deducted. When it comes to real estate investments, there are two important ROI calculations to know.  
The cost method calculates ROI by dividing the equity by all costs. For example, take a property bought for $100,000 that requires an additional investment of $50,000 for repairs. After it’s been fixed up, the property is alued at $200,000. Using the cost method, the investor’s equity position is $50,000 ($200,000 minus $100,000 + $50,000), and the ROI is 33% ($50,000 profit on sale divided by $150,000 in costs).
Real estate investors prefer the out of pocket method because it results in a higher ROI. Say the same property was financed with a loan and a down payment of $20,000. With the $50,000 for repairs, the out of pocket expense is $70,000. The investor’s equity position is $130,000, and the ROI is 65%.
ROI cannot be realized until a property sells, which often is for less than the initial asking price, reducing the ROI. Costs like advertising and appraisal can also cut into the ROI.
Other variables, like property cash flow stemming from a rental or a refinanced mortgage, can make calculating the ROI on a property complex. But real estate investments have proven to be very profitable, even in a recession.
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ROI - Return on Investment
Investor Corner
Keller Williams Preferred Properties 1441 McCormick Dr, Ste 1020 Upper Marlboro, MD 20774 Office: 240-737-5000 Direct: 443-221-3559 | Jamie Lamartin, Realtor