ROI or Return on investment

Photo of a screen in an office with Return on Investment on it to symbolise the ROI calculation formula

ROI or Return on Investment is a popular key performance indicator for property investors.

ROI calculation formula

There are four stages to the ROI calculation formula:

  1. Calculate the annual rental income.
  2. Subtract your expenses, including any mortgage payments, management fees, repairs and gas safety certificates.
  3. Divide this net figure by the amount of cash invested into the property.
  4. Multiply by 100 to get the final percentage ROI figure.

What does ROI actually mean?

Return on investment measures how hard the cash (or equity) you invested in the property, by comparing it to the net annual income this cash generates.

The percentage return on investment varies according to how much cash was used to purchase the property, as a percentage of the purchase price.

Consequently, the lower the cash and the higher the debt, the higher the ROI. In other words, ROI doesn’t measure the performance of all of the sums invested in the property (including the debt), but just the cash element.

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ROI calculation formula for property investors
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