Return on Investment: ROI Calculator
Are you thinking about buying a new rental property? Or maybe you want to see how your current rental properties are performing. Whatever the case, calculating your return on investment (ROI) can be a crucial measure of success. Below, we’ve provided NYC’s 1st ROI calculator for residential real estate that can help you assess whether a property is a good purchase or not in New York City.
Be sure also to take some time to understand how ROI is calculated and how to evaluate the results you are provided.
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ELIKA New York: Real Estate Calculators
Table of Contents
What Is Return on Investment In Real Estate Investing?
ROI measures how much profit is made on property investment as a percentage of the cost of that investment. Knowing a property’s potential ROI in real estate is vital when determining whether it is a good investment. ROI is also beneficial when comparing similar properties to see which one is the better choice.
How Is ROI Calculated for Real Estate Investments?
ROI is relatively simple to calculate. The typical method for calculating an investment’s ROI is subtracting the investment cost from the investment gain, then dividing that result by the investment cost.
Put another way, ROI = (Investment Gain − Investment Cost) ÷ Investment Cost.
That said, ROI calculators can vary in accuracy when certain factors, such as the property type or the mortgage terms, are not accounted for. To ensure your investment remains secure, our calculator includes every crucial aspect you need to consider when calculating a property’s ROI.
Cash Transactions Vs. Financed Transactions
Using our calculator to determine a property’s ROI is very straightforward for all-cash buyers. You need to know the purchase price, property type, investment period, rental amount, and any property expenses from insurance, taxes, maintenance, or common charges.
For example, let’s say you’re buying a condo, all cash, for $1 million. You plan to hold it for five years with an appreciation rate of 5%. Monthly income will be $4,500 from rent, while monthly expenses will include water costs of $40, common charges of $900, insurance costs of $45, and property taxes of $750. After inputting these figures into our calculator, you’re left with an annual ROI of 5.75% and a total ROI of 32.24%.
For those who are financing their purchase, you’ll need to factor that cost into your ROI calculation. This means your calculation will include your down payment, interest rate, amortization period, and other property expenses. Using the same example above for a $ 1 million condo purchase that is 80% financed, with an interest rate of 5%, and an amortization period of 30 years, this gives you an annual ROI of 9.68% and a total ROI of 58.76%.
As a general rule of thumb, paying less cash upfront as a down payment will result in a higher mortgage balance but a larger ROI. The more cash you pay upfront, and the less you borrow, the lower your ROI. Financing allows you to boost your ROI in the short term since your initial costs are lower.
What is a Good ROI in Real Estate?
Every property investor will have their answer for this. Some investors won’t consider any property that doesn’t predict at least a 20% return rate. Others might feel anything above 10% is a good ROI, while others still consider 5% to 10% as an acceptable range.
The point is that it’s entirely up to you as an investor on what you consider a reasonable return rate. A “good” ROI is highly subjective and depends mainly on your risk tolerance. The more expensive a home is, the longer you’ll want to hold onto it to make the investment pay off. In NYC, property investment is more likely to be profitable when rented out over a long holding period.
Is ROI the Only Thing You Should Consider for an Investment?
Calculating a property’s ROI helps determine whether a potential purchase is a good choice. However, it is not the only thing you should consider. A property’s capitalization rate, or cap rate, is another critical metric. While there are many variations, the cap rate is usually calculated as the ratio between the annual rental income produced by a property and its current market value. Our calculator includes a cap rate in your calculations to make things easier for you.
Other important metrics that you need to know to include your Net Operating Income (NOI), cash-on-cash return (CoC), Cash flow, vacancy rate, Internal Rate of Return (IRR), and Loan-to-Value Ratio (LTV).
Ask an Expert
Are you searching for an investment property? An Elika investment advisor can help guide you. Request a curated shortlist of investment properties that match your needs. And our buyer’s agent services? No cost to you. Buy with confidence.