How to Calculate ROI on Real Estate Investment: A Beginner's Guide

Learn how to calculate ROI on real estate investments to make informed decisions and boost your profits. Simple formula + real-life example included.

Himash125

Jun 21, 2025 - 15:54

Blog:

Investing in real estate is one of the most reliable ways to grow wealth over time. However, understanding how to evaluate the profitability of your investment is crucial. This is where ROI Return on Investment comes into play.

What Is ROI in Real Estate?

ROI in real estate measures how much profit or return you make on a property relative to its cost. It helps investors determine if a property is a smart investment based on financial performance.

The Basic ROI Formula:

The most common formula is:

ROI = (Net Profit / Total Investment Cost) 100

Lets break it down:

Net Profit = Total Income from Property Total Expenses
Total Investment Cost = Purchase Price + Renovation + Other Costs

Example:

Purchase Price: ?50,00,000
Renovation: ?5,00,000
Annual Rental Income: ?6,00,000
Annual Expenses (maintenance, taxes, etc.): ?1,00,000

Net Profit = ?6,00,000 - ?1,00,000 = ?5,00,000
Total Investment = ?50,00,000 + ?5,00,000 = ?55,00,000

ROI = (?5,00,000 / ?55,00,000) 100 = 9.09%

Tips for Better ROI:

Buy below market value
Invest in high-rent areas
Keep maintenance costs low
Improve property appeal to raise rent

Final Thoughts:

Calculating ROI is essential for making smart real estate decisions. Always consider both rental yield and long-term appreciation to get the full picture of your returns.