How to calculate real estate ROI

February 13, 2014  //  Posted by: cooldude  //  Category: Real Estate Rumblings

real estate ROIWhen you are looking for an investor who would finance your business the first thing that you should calculate is the Return on Investment. Calculating return on investment is easy especially if you know the formula. It is generally expressed as percentage and the answer is achieved in decimals. The decimal can further be converted into percentage by multiplying 100 with the result. There are three things which help to determine the return on investment. They are as follows:

• Net profit of the business which would also include the profit after incurring all the necessary cost in the business.
• The starting capital is another determinant in finding return on investment. This should be the sum of all the initial investments.
• Last is the time period for which the return on investment is being calculated suppose one month or one year.

Now let’s see how the ROI is calculated. Suppose the income statement shows a net profit of $775 and while setting up the business you spent $25 in flyers, $1000 in shoes and $500 on renting the place which sums up to $1525. The time period for which you will calculate the return on investment is one day. So now you will have to divide the actual net profit with the amount invested which in this case would be $775/$1525. The answer which comes should be multiplied by 100 to give the percentage and the result is 51%. This however is the return on investment for one day. With this data it would not be possible to calculate the ROI for the whole year or the whole month because although the initial capital will be the same but the net profit will change from time to time. So in order to calculate for a particular period you will have to multiply by the number of months and divide by 12 to get the actual percentage.

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