How To Calculate ROI on Property

Using property as an investment

Real estate is one of the more popular investment tools. People use real estate investment in several ways, including buying a house to build equity or buying a house to fix up quickly and then sell after the improvements have been made, commonly known as "flipping" a house. No matter the investment, once the house sells, people want to know their return on investment, or ROI. This shows how profitable the house was as an investment.

Instructions

1. Determine the cost of the property and any additional expenditures made on the property to get the property ready to sell; then determine the selling price of the property. For example, a person buys property with a house for $40,000. He then spends $20,000 to fix the house and property. After improving the property for sale, he sells the property for $80,000, net of any fees.

2. Subtract the investment cost from the selling price to determine gain or loss. In the example, $80,000 less $60,000, which equals $20,000.

3. Divided the gain or loss by the investment cost. In the example, $20,000 divided by $60,000 equals 0.3333 or 33.33 percent.

References

• Investopedia: Return on Investment
• Solution Matrix: Return on Investment
• Value Based Management: Return on Investment