Is your investment profitable? You need to know the ROI!
Return on Investment (ROI) is a key real estate metric. Investors use it to evaluate the profitability of their real estate investments. It measures the return generated on an investment relative to its cost. We’ll show you how it’s calculated in commercial real estate transactions. And how investors track total ROI and cash on cash ROI to determine the profitability of their investments.
What is Return on Investment (ROI)?
Return on Investment (ROI) is a financial metric that measures the profitability of an investment relative to its cost.
Calculating ROI in Commercial Real Estate Transactions
In commercial real estate transactions, here’s how to calculate ROI. Divide the NOI (Net Operating Income) by the total cost of the property.
NOI is the income generated by the property after deducting operating expenses. Such as property taxes, insurance, maintenance, and management fees.
Tracking Total Real Estate ROI:
Total ROI measures the overall return generated by an investment over a specific period. It takes into account both the income generated by the property and any appreciation in the property’s value. To calculate total ROI, you would add the income generated by the property (NOI) to any appreciation in the property’s value and divide by the initial cost of the investment.
Tracking Cash on Cash Real Estate ROI:
Cash on Cash ROI measures the return generated by an investment relative to the amount of cash invested. You can calculate this by dividing the net operating income (NOI) by the amount of cash invested in the property. If you’re an investor who wants to generate income, it’s a useful metric.
Conclusion:
Return on Investment (ROI) is a critical metric to evaluate the profitability of a real estate investment. Use it to make sure you’re actually making money with your investments. d decisions about your investments and how to maximize the returns.
