What is ROI?
Many have heard that acronym used around financial advisors or investors, including those involved in rental properties. ROI stands for “Return on Investment.” And it simply shows what the rate of return is on an investment that is made. When it comes to a rental property, the ROI is usually looked at by an investor to determine if the rate of return is satisfactory compared to the purchase price of a property. However, an important point to keep in mind is that there is no set ROI out there. Every investor must make this decision on their own. How do you determine an ROI on a rental property? Simply put, you divide the annual rental income (minus any expenses incurred) into the purchase price of the property. Then, multiply by 100 to acquire the percentage. This will give you the annual net ROI. Of course, it is sometimes challenging to figure out all of the expenses when purchasing a rental property, since repairs specifically can be unpredictable. A high ticket item can change the ROI drastically. However, with good preparation and research, a rental property can be a successful venture.
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