How to Calculate Return on Investment in Real Estate

Keeping track of costs for repairs and upgrades is necessary in order to calculate your real return on investment.

Keeping track of costs for repairs and upgrades is necessary in order to calculate your real return on investment.

Despite the crash in the housing market in 2008, real estate remains a lucrative investment opportunity. Even when homeowners watch their home values plummet, landlords enjoy high tenancy rates and speculative investors can find bargains on depressed property values. If you don’t keep a careful watch on your return, however, a real estate investment can become a money pit.

Keep track of your investment. Add up the total cost paid out of pocket -- such as down payment, repairs and mortgage interest -- to determine your investment basis.

Subtract your investment basis from the current equity of the property. For example, if you purchased a house for $100,000 and paid $35,000 on upgrades, and the house is now worth $250,000, then your equity position is $115,000.

Divide your equity position by the total investment. Multiply the result by 100 to convert to it to a percentage. For example, if your equity position is $115,000 and your investment basis is $135,000 then your return on investment is 85.2 percent.

 

About the Author

Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.

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