Return on Investment
Profit as a percentage of money invested.
Formula
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Example
$60k profit on $300k: ROI = 20%
How it works
Return on investment tells you how efficiently a purchase or project turned money spent into profit. It works by comparing the net gain to the original cost, then multiplying by 100 so the result is easy to read as a percentage. A higher ROI means you earned more profit for each dollar invested, while a lower ROI means the investment produced less return relative to its cost.
When to use it
Use this formula when you want to compare the profitability of a property purchase, renovation, rental upgrade, or other real estate investment. It is especially useful for deciding whether one opportunity is better than another, even if the starting costs are different.
Worked example, step by step
Suppose you bought an investment property for $250,000 and later sold it for $290,000 after all costs. Step 1: Find the net gain = $290,000 - $250,000 = $40,000 Step 2: Divide gain by cost = $40,000 / $250,000 = 0.16 Step 3: Convert to a percentage = 0.16 × 100 = 16% ROI = 16%
Common mistakes to avoid
- Using gross income instead of net profit for the gain
- Dividing by the final sale price instead of the original cost
- Forgetting to include all investment costs such as repairs, fees, or closing costs
Did You Know?
Property ROI should include buying costs, renovation and selling fees — not just the price difference.
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