Rental4Income

  • Home
  • Investor Profile
    • Pre-Approval Form
  • Articles
    • Cash Flow
    • Finance
    • Investment Tips
    • Real Estate Investing
      • Tampa, FL
    • Real Estate Mentor
    • Rental Property
    • Tampa Real Estate News
    • Turnkey Investment Properties
    • Wholesale Real Estate
  • Videos
  • Glossary
  • Properties
  • Testimonials
  • About
    • Investing in Rental Property
  • Contact

Return On Investment (R.O.I.)

Return On Investment (ROI) – measures the profitability of an investment or asset purchase decision. If calculated correctly, the ROI can simply reveal the efficiency of an investment as well as compare the efficiency of a number of different investments.

Determining the return on investment is a very important part of any investment review.

The most common ROI analysis compares investment returns and costs or expenses resulting in a ratio, or percentage. In cases where the resulting ROI ratio is greater than 0 (or a percentage greater than 0%) signifies that the investment returns more than its cost.
In order to calculate an investment’s ROI the following financial information will need to be incorporated:

  • Initial up-front costs associated with the investment
    • Property purchase price
    • Closing Costs
    • Mortgage expenses
    • Taxes
    • Maintenance Cost
    • Time – how much time will you spend on this property? Time equals money
  • Projections
    • Annual Operational expenses
    • Annual interest expense
    • Annual rental
    • Anticipated capital gains
    • Time – expected time frame for return to happen
  • Other
    • Investor tax rate information
    • Other Income
  • Chronological Time Line
    • Time frame – When do you expect returns to happen?
    • Create a timeline and lists all returns (positive figures) and expenses (negative figures)
    • Establish a correlation between the projected returns and expenses

We can follow these steps by calculating the Annualized Return on Investment

Assuming an investment transaction took place on January 1, 2011. That investment cost you $100,000 including fees. Today, September 21, 2011, you decide to sell that investment and you receive $120,000 after all expenses.

Now we want to find the annualized return on investment of this property so we can compare it to other investments. In finance, this is often known as calculating your internal rate of return. Technically, this process involves determining a discount rate at which the present value of a series of investments is equal to the present value of the returns on those investments.

For a simple situation like the example above:
Annualized Return on Investment = (Final return/Initial investment)^(365/days) – 1

This indicates that the annualized return on investment equals the final dollar amount divided by the initial investment (positive number for this equation) raised to 365 divided by the number of days the investment took to complete. Then you subtract one from the number you just calculated and multiple by 100 to get your percent.

This is a simple example, but keep in mind that every investment is different and there may be other factors affecting or affecting the process.

ROI calculations can be used to compare investments. When more than one investment is compared, and when factors between the alternatives are truly equal, the investment with the higher ROI is considered the better option. A high ROI is determined when investment gains compare favorably to investment costs.

It is important to keep in mind that there are factors and risks that can influence the outcome of the ROI such as investor’s income tax brackets, capital gains rates and recapture depreciation tax rates since they impact return on investment. For that reason, an effective analysis of an investment will measure the probabilities of different ROI outcomes, and astute investors will consider both the outcome of an ROI calculation and the risks that go with it.

There are ways to possibly improve the ROI by reducing costs, increasing gains, or accelerating gains. Some factors can be:

  • Increase after tax cash flows for income property by reducing operational costs and increasing rents
  • Minimizing vacancies and making sure that rental rates are at market value
  • Periodically review the market to see if rental rates reflect current market conditions

Want To Learn More About Real Estate Investing?

Sign up for our newsletter, and you'll receive our newest articles!

By clicking this button, you consent to receive emails, calls, and text messages about our products and services at the email address and phone number you provided. You agree that such calls may be made using an automatic telephone dialing system, they may be considered telemarketing or advertising under applicable law, and that you are not required to provide your consent to these calls to make a purchase from us. For more information about how we process your data, please click here to read our Privacy Policy.

Recent Articles

  • Median Home Prices and Mortgage Rates Climb [Infographic]
  • How to Improve Your Chances of a Favorable Appraisal When Selling Your Home
  • January Housing Market Report
  • Tampa Bay’s 2021 Rent Increased a Record 24%
  • Tampa, Florida is 2022’s Hottest Housing Market

Get Started Right Now!

Get started investing in real estate with Graystone Investment Group.

For more information about how we process your data, please click here to read our Privacy Policy.

phone Graystone Investment GroupCall (813) 449-4323
Text Graystone Investment GroupSend Text to (813) 600-1658
Graystone Investment Group
3001 N Rocky Point Dr E, Suite 200
Tampa, FL 33607 USA
phone Graystone Investment GroupCall (813) 449-4323
Text Graystone Investment GroupSend Text to (813) 600-1658
Subsidiary Brands:
Graystone Acquisitions
Graystone Developments
Graystone Real Estate
Homes4Income.com
Rental4Income.com
RealEstate4Investing.com
Accessibility
Terms of Service
Privacy Policy

Recents Posts

  • Median Home Prices and Mortgage Rates Climb [Infographic]
  • How to Improve Your Chances of a Favorable Appraisal When Selling Your Home
  • January Housing Market Report
  • Tampa Bay’s 2021 Rent Increased a Record 24%
  • Tampa, Florida is 2022’s Hottest Housing Market
  • Housing Market Report: December 2021

Categories

  • Articles
  • Cash Flow
  • Finance
  • Investment Tips
  • Market Reports
  • Real Estate Investing
  • Real Estate Market Stats
  • Real Estate Mentor
  • Recent Properties
  • Rental Property
  • Special Events
  • Tampa Real Estate News
  • Tampa, FL
  • Testimonials
  • Turnkey Investment Properties
  • Uncategorized
  • Wholesale Real Estate
Client Evaluation | Investor Profile | Rewards Program | Recent Properties | Pre-Approval Form
Legal Notice | Terms of Service | Privacy Policy
© 2022 GRAYSTONE INVESTMENT GROUP, ALL RIGHTS RESERVED. THE RENTAL4Income LOGO AND BRAND IS THE PROPERTY OF GRAYSTONE INVESTMENT GROUP LLC
DISCLAIMER: RENTAL4INCOME.COM IS A WEBSITE OF GRAYSTONE INVESTMENT GROUP LLC. YOU ARE HEREBY NOTIFIED THAT NEITHER GRAYSTONE INVESTMENT GROUP LLC, NOR ANY OF ITS EMPLOYEES OR SUBSIDIARIES, REPRESENT YOU IN ANY CAPACITY. YOU SHOULD NOT ASSUME THAT GRAYSTONE INVESTMENT GROUP LLC OR ANY OF ITS EMPLOYEES OR SUBSIDIARIES IS A REAL ESTATE BROKERAGE. WE ARE A WHOLESALER, AND ALWAYS ACT AS A SELLER OR ASSIGNOR ON EVERY TRANSACTION.
Internet Marketing by Image Building Media.