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.
i Gary Houlder/Lifesize/Getty Images

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.

Step 1

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.

Step 2

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.

Step 3

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.

the nest