QUOTE (Thorin @ Oct 17 2009, 04:14 PM) I am wondering if anyone has a fairly simple calculation of ROI in Real Estate Investing. I tried to look it up on google and just got confused. I thought ROI was just your monthly rent you collect / your total cash investment. I know that this is something I will need to understand for REI and especially for approaching JV partners in the future.
ROI means return on investments. What did you invest? Your down payment plus any future renovation costs (not maintenance). What did/do you get in return?
1: positive cashflow (accumulated during years of ownership)
2: Upon sale of your unit or when refinancing that portion of the mortgage principal that has been paid off
3: Sales proceeds minus purchase price minus the costs of renovations (other than plain maintenance which is financed out of cashflow).
So your profit or return is 1+2+3. Return on investment (ROI) is the percentage of profit in respect of your investment:
ROI = Profit/investment x 100% = (1+2+3)/(downpayment+renovation costs)x100%
Hope this helps.