Return on investment, also known as ROI, is a calculation used to determine the percentage of money a real estate investor can expect after deducting the costs of the investment. The formula for calculating ROI is as follows: Forecasted gain from a real estate investment minus the forecasted cost of the real estate investment divided by the forecasted cost of the real estate investment. Although the formula seems simple enough, there are other variables to consider such as unexpected maintenance costs and interest if investors use some type of financing to obtain the investment property.
Other factors that can affect an investors ROI is property taxes and whether or not there is an adjustable-rate mortgage on the property. When investors need to use complex calculations to determine their ROI, they often use a mortgage calculator. A mortgage calculator helps investors find favorable interest rates from multiple lenders, and it helps them calculate such variables as forecasted cash flow from rental properties and whether or not it is wise to sell or rent their investment properties. There are complications that arise when calculating ROI. When an investor refinances an investment property or takes out a second mortgage on a property, it can affect the investors ROI.
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