1. What is Return On Investment (ROI)?

Return On Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. In real estate, it helps investors assess the profitability of a property.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( NOI \) — Net Operating Income (annual income after operating expenses)
• \( Cost \) — Total property acquisition cost

Explanation: The formula calculates what percentage return the property generates relative to its cost.

3. Importance of ROI Calculation

Details: ROI helps investors compare different investment opportunities, assess property performance, and make informed buying/selling decisions.

4. Using the Calculator

Tips: Enter accurate NOI (rental income minus operating expenses) and total property cost. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental property?
A: Typically 8-12% is considered good, but this varies by market and property type.

Q2: Should I include mortgage payments in NOI?
A: No, NOI should exclude financing costs (mortgage payments) and capital expenditures.

Q3: How does ROI differ from cap rate?
A: Cap rate uses current market value in denominator, while ROI uses original purchase price.

Q4: What expenses should be included in NOI?
A: Include property taxes, insurance, maintenance, utilities, property management, but exclude mortgage and income taxes.

Q5: Can ROI be negative?
A: Yes, if operating expenses exceed income, resulting in negative NOI.