One of the primary goals of rental property investors is to grow profit. A smart investor will make use of the massive wealth of tools and resources available. Such tools include real estate websites, resources for interior/exterior design, home staging simulators, apps for document signing, and a wide variety of calculators. Investors can find an ideal location with a cost of living calculator, estimate the returns and cash flow of rental properties, and there are even calculators for estimating property tax. Moving forward, if you have found the right rental property that is worth your investment, then you have completed the first step. But what happens after that depends on your next steps.
Rental property investing is indeed a lucrative market so you must need a Los Angeles Rental Property Calculator to get correct value of your property. That is why making the right choice and investing in a property with the best ROI per year is a smart move. Using the right rent return on investment calculator, you are a step closing to achieving financial freedom.
Calculating the ROI on a Property Investment
The promise of monthly cash flow, long-term appreciation and tax advantages are reasons why investors own and operate rental properties. The primary goal is to increase wealth and save funds for inevitable life events, retirement or any other reason.
Once you find a potential property that fits perfectly into your investment goals, calculating your ROI is your next step. With the help of a reliable Property ROI calculator, you can measure the profitability of your investment.
ROI is a metric that measures the profitability of your investment. Whatever possible returns you may have about the cost of the property is determined by the ROI. You have to consider the mortgage details, monthly rental expenses, property details, rental income details, and annual rental expenses to help you decide whether investing in the property aligns with your long-term investment goals.
The best way to calculate your ROI is to divide the amount you earned from your investment by the overall purchase price and then multiply it by 100. You will have a result in percentage value but to demonstrate further, check out this formula below:
ROI = (Net profit / cost if your investment) x 100
ROI = (present property value – investment cost / overall investment cost) x 100
For instance, if you invest $10,000 in XX2 company the previous year, but then you sold your shares for about $10,500 just this week, this is how you will calculate your ROI:
ROI = ($10,500 – $10,000 / $10,000) x 100
XX2 company will have an ROI of 10%. This example does not yet include capital gains taxes or any fees involved during the buying and selling of the shares. In the real scenario, those factors will be added to the cost of investment. For your convenience, you can use the rent return on investment calculator and compare the value to the ROI percentage of your other investments.
What Is Considered a Good ROI?
For investment in stocks, most investors agree that an annual ROI of about 7% or greater is considered a good ROI per year. For instance, if you start by putting around $2,000 into an investment that has an average annual return of 7%, you will see your money grow up to $2,967 after a decade. It will almost double your initial investment cost.
Still, to figure out the right ROI for your investment strategy, careful consideration is important instead of doing just a simple benchmark. To ensure that the ROI is good, ask yourself these questions:
- In case you lose the money you invest, what do you think will happen?
- How much risk can you afford to take?
- Is there something else you can do with your money if you don’t make this investment?
- How much profit do you need for this investment to offset the cost in case you lose the money?
Why Do You Need To Calculate Your ROI
When you are a novice investor, you tend to be gullible and vulnerable. At first sight, a rental property may look profitable and perfect for your investment portfolio. Without proper research, it might be too late before you realize that the property is not worth the risk. While searching for the right investment is important, knowing how to calculate the ROI on rental property is crucial.
Take a look at these advantages of calculating the ROI:
1. To help you analyse your investment units. If you want to compare various rental properties in terms of profitability, then using the ROI calculator is your best bet. The numbers will help you decide if you have enough money to invest in other properties.
2. To help you achieve your investment goals. Looking at your ROI ratio or percentage will give you an idea about your current standing in terms of your investment goals. You can track your progress and improve the overall ROI of your rental investments.
3. It helps measure your property’s profitability. Figuring out the ROI of your rental properties means you can now easily have an estimate of your net income. Knowing the performance of your investments is crucial, that is why a free rental property calculator is available for your convenience.
4. It matches with traditional measurements. Since ROI is a financial accounting metric, it is accepted in traditional accounting. You won’t have to create any accounting measurements when you need to calculate ROI.
Grow Your Wealth Through Rental Property Investment
Having realistic expectations on the type of return you want is important. When it comes to real estate, the returns vary widely and most of the time, it depends on the type of real estate you invest in. It all boils down to how much you are willing to risk. Remember that the higher the investment risk, the higher your chances of earning greater returns or greater losses. Take note of the basic tenets of responsible investing so you can be prepared for long-term success.
When you own and manage a rental property, you expose yourself to this profitable and rewarding experience. But success will not be within your reach if you don’t have the proper knowledge. What you need is ample time to learn the ropes and be one step ahead of your competition.
Before you invest your hard-earned money, take time to learn the basics of real estate investing. Be sure you understand the importance of using a rent return on investment calculator to help you compare and rank your investments.
If you want to learn more on how to grow your investment and get a higher ROI, start early and diversify your investment targets. Don’t hesitate to check our blog to learn more about real estate investing.
