How to Calculate ROI in Real Estate with Agnieszka Sycewicz

Understanding Return on Investment (ROI) is crucial for making informed decisions in real estate. Here's a guide to help you calculate and interpret ROI for your real estate investments.

What is a Good ROI?

A good ROI in real estate typically ranges from 8% to 12% or higher, depending on factors such as location, market conditions, investment strategy, and individual goals. This means the return on investment yields a significant percentage of profit relative to the initial investment.

Different types of real estate investments may have varying expectations for ROI:

• Rental Properties: Expected ROI can differ compared to fix-and-flip projects or commercial real estate.
• Fix-and-Flip Projects: Often have higher, but more variable ROI expectations.

Investors should consider their risk tolerance and investment objectives when determining what constitutes a good ROI for them.

How to Calculate ROI for Real Estate

1. Determine Initial Investment: Calculate the total amount invested in the property, including the purchase price, closing costs, renovation expenses, and any other associated fees.

2. Estimate Net Income: Calculate the net income generated by the property. For rental properties, subtract annual operating expenses (property taxes, insurance, maintenance, utilities, property management fees, etc.) from the annual rental income. For fix-and-flip properties, subtract total project expenses (purchase price, renovation costs, holding costs, etc.) from the selling price.

3. Calculate ROI: Divide the net income by the initial investment and multiply by 100 to express the result as a percentage. The formula is: $\text{ROI} = \left( \frac{\text{Net Income}}{\text{Initial Investment}} \right) \times 100$

4. Interpretation: A higher ROI indicates a more profitable investment. Compare the calculated ROI to your investment goals and expectations to determine if the investment aligns with your objectives.

Example Calculation:

Initial Investment:

• Purchase Price: $200,000
• Closing Costs: $10,000
• Renovation Costs: $20,000
• Total Investment: $230,000

Net Income:

• Annual Rental Income: $20,000
• Annual Operating Expenses: $5,000
• Net Income: $15,000

ROI Calculation: $\text{ROI} = \left( \frac{15,000}{230,000} \right) \times 100 = 6.52\%$

In this example, the calculated ROI is 6.52%, indicating the return generated relative to the initial investment. Adjustments may be made based on specific factors and considerations relevant to the investment scenario.

Note: This is an estimate. Actual results may vary. Want to learn more? Reach out to Agnieszka Sycewicz for expert advice and guidance on your real estate investments.