Return on Investment (ROI) is the key percentage metric that quantifies how much profit or loss you generate relative to what you spent. For investors, a solid ROI signals a winning deal; for homebuyers, it highlights long-term equity potential.
You’ll see ROI in property listings, investment analyses, lender reports and portfolio reviews. It’s used to compare rentals, flips, commercial redevelopments and even marketing campaigns.
ROI = (Net Profit ÷ Total Investment Cost) × 100. It measures gain or loss as a percentage of what you invested.
Profit margin divides profit by revenue; ROI divides profit by total capital invested, capturing both income and cost basis.
Net Profit = Income (rents + sale proceeds) – Expenses. Total Investment = Purchase Price + All Acquisition & Holding Costs.
Include purchase price, closing fees, renovation budgets, property taxes, insurance, utilities, management fees and financing interest.
Exclude interest-only costs if you want an equity-basis ROI. Alternatively, factor financing to see leveraged ROI.
Collect actual invoices, tax records, rent rolls and sale statements. Estimate conservatively for vacancies and unexpected repairs.
Add rental income, sale proceeds or tax benefits, then subtract acquisition + operating costs.
Divide net profit by total cost, multiply by 100. A positive percentage is a gain; negative means a loss.
Cap Rate = Net Operating Income ÷ Property Value. Use cap rate for unleveraged yield; ROI for full investment returns.
CoC Return = Annual Cash Flow ÷ Cash Invested. It ignores appreciation and financing paydown.
IRR projects annualized return over multiple periods; ROI is a simple snapshot.
Generally, 8–12% is solid for residential; 15%+ for value-add or commercial deals.
Residential rentals often yield 6–10%; multifamily and commercial properties target 10–20% depending on risk.
Short-term ROI focuses on quick flips and cash flow; long-term ROI captures appreciation, amortization and tax benefits.
Budget at least 5–10% of gross rent for vacancy, plus a 1–3% capex reserve.
Use conservative rent estimates; include a contingency line item for repairs.
Base rent growth on historic trends and local market data, not best-case scenarios.
Purchase price $500,000, closing costs $15,000, renovations $35,000, annual rent $60,000, operating expenses $20,000.
1.Net Profit = 60,000 – 20,000 =40,000. 2.Total Investment =500,000+15,000+35,000=550,000. 3.ROI=40,000÷550,000×100≈7.3%.
If vacancy rises or renovation overruns occur, net profit falls and ROI drops. Accurate estimates are crucial.
Use calculators from BiggerPockets, Zillow and local MLS tools.
Download templates from real estate blogs, adjust line items for your market.
Explore our glossary entries on IRR and cap rate.
Gather rent rolls, expense records, purchase costs; compute net profit; divide by total investment; multiply by 100.
Include closing costs, renovation budgets, holding costs, taxes, insurance, and management fees.
No. ROI measures total gain vs. cost; cap rate focuses on income vs. value; CoC Return focuses on cash flow vs. cash invested.
Typically 8–12% for residential, 10–20% for commercial, depending on risk and market conditions.
Yes. Negative ROI means you lost money—often a sign of overpaying, excessive costs or market declines.
ROI is a versatile, percentage-based metric for comparing deals, evaluating performance and guiding investment decisions.
Combine ROI with IRR, cap rate and CoC Return. Leverage spreadsheets and calculators to vet every opportunity.
