# How to Calculate ROI in Real Estate?

### What is Return-On-Investment (ROI):

There are so many definitions on the internet about ROI but in simple words, it can be described as, “amount of money gained from an initial cost in a certain period of time.” For instance, if your initial cost of investment. ROI is calculated as a percentage value of the total investment cost.

The concept and methodology of ROI are used in all kinds of investment sectors but in real estate, it has a significant role because the greater the ROI, the more investment a real estate project attracts.

If you’re looking forward to investing in real estate or already have an investment and want to calculate the ROI of your investment, then you’ve come to the right place. In this blog, you’ll learn in a step-by-step guide.

### FEW BASICS OF ROI

ROI is an accounting term that is widely used in the banking and business field. It summarizes the estimate of the percentage of profit an investment can earn in a certain amount of time after deducting all the expenses or costs.

The formula for ROI is:

ROI = (Investment Gains – Initial Investment Costs) / Total Cost

Investment Gains are the amount of money that has risen after the initial investment.

Initial Investment Costs is the initial cost at the time of investment.

Total Cost is the initial investment plus all the associated costs with it. (includes hidden cost as well).

This is an easy formula as it seems but when you will sit down to calculate there are a lot of factors involved while calculating the properties ROI. This may include repairing, maintenance, interest (if you took a loan), and much more. Everything associated with your real estate investment will have an evident impact on the ROI.

### WHAT IS A BETTER ROI?

Anything greater than 8% is considered a good ROI and you should take it. Less than 8% is a sign that you should wait for it to get higher. It is said that 10%-12% is a good ROI excluding all the hidden charges and expenses.

### FACTORS INVOLVED IN A GREATER ROI

There are a few important factors that will help you give a greater ROI. Consider the following when making a real estate investment.

1. Location: The location of your investment is the most significant of them all. You should always invest in a place that is close to the city or somewhere you see an opportunity that this area will be the next to cover the overpopulation of the city. If your location is not good you are not going to make it to your expectations.
2. Condition: If you are buying a property and it is in a bad shape then you should skip it because the maintenance and repair cost of that place shall reduce your ROI by a great percentage. An alternate to this to revamp the whole place to a newer look and then sell back in more than the market value of your demand.
3. Market Value: The market value of a property depends on many factors such as demand and supply, availability of basic amenities nearby, and much more. Make sure to give it proper research before buying a real estate investor.

So, this is all for today! I hope we have once again educated you and it adds value to your life. For further details and for a good investment opportunity please contact us or visit us at our office.