How to Calculate ROI on Real Estate Investment?

Since real estate has the option to get rented, it is often considered to be a best investment opportunity. But you may end up acquiring a property which can be proved as a poor investment for you, if you don’t make selection of property carefully. This way, you should calculate ROI or returns on investment in real estate in order to make good investment in Ajax homes for sale.  

1.      First of all, you need to determine the amount you would make from this investment. Every month, also include the money you would make from renting the property out or leasing it. Without deducting any cost, make sure to multiply the amount by 12 in order to get sum total of a year.

2.      For your investment in Ajax condos for sale, include insurance, taxes, repairs and mortgage payments to add up the expenses related to property. Make sure to transform all the numbers into annual numbers. For instance, if you have to pay taxes of $1500 per year, insurance of $50 per month ($600 annually), mortgage $375 per month ($4500 annually) and repairs worth $400 annually, then expenses would be total of $7000 per annum.

3.      Figure out the amount invested by you. Before leasing or renting out the property, cost of repairs and down payments are taken as investments. Repairs made during leasing or renting out the property will fall under the category of expenses. For instance, if $15000 invested on buying property and $5000 spent on its repairs, then total amount of investment would be $20000.

4.      After calculating the repairs and down payments, it’s time to determine net operating income. You can determine NOI or net operating income by considering the sum of money you would earn from leasing or renting the property minus total amount of expenses. The total you will get would be Net Operating Income. Let’s clear it with an example. Suppose your earnings from real estate are $8400 per annum, then your Net Operating Income shall be $1400 ($8400 - $7000). So, NOI will be $1400 from your property.

5.      In order to calculate ROI, you should use NOI. Get NOI divided by total amount invested. Convert the figure you will get into a percentage. Shift the decimal two digits to right. As an example, $1400 divided by $20000, and the ROI will be 0.07, i.e. actual return on investment shall be 7%.

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