Real Estate Return on Investment 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 to help you assess whether a property is a good purchase in New York City.
Be sure to also take some time to understand how ROI is calculated and how to evaluate the results you are provided with.
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ELIKA New York: Real Estate Calculators
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What Is Return on Investment In Real Estate Investing?
ROI measures the profit 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 is better.
How Is ROI Calculated for Real Estate Investments?
ROI is relatively simple to calculate. The typical method is subtracting the investment cost from the investment gain and dividing the result by the investment cost.
ROI Formula
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 to consider when calculating a property’s ROI.
Cash Transactions Vs. Financed Transactions
For all-cash buyers, using our calculator to determine a property’s ROI is straightforward. 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 financing their purchase, you must factor that cost into your ROI calculation. 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%.
Generally, 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 boosts 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% acceptable.
The point is that it’s entirely up to you as an investor to decide what you consider a reasonable return rate. A “good” ROI is highly subjective and depends mainly on risk tolerance. The more expensive a home is, the longer you’ll want to hold onto it to 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 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 to know 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.