Determining the ROI for an investment property

You can determine the ROI for an investment property, or ROI (acronym in English) to measure the rate of return that a property generates in a year. The formula for ROI is synonymous with a capitalization rate and net operating income equals a market value divided his property. The net operating income, or NOI (acronym in English), is income that a property generates after paying operating expenses. A higher ROI suggests a more profitable investment real estate, but you should also consider other measures, as the ROI excludes the effects of financing and income taxes.

Instructions

1
Multiply the annual rental income per unit of investment property by the number of units in the property to calculate your gross potential income. For example, an apartment complex of 20 units annually generates $ 24,000 per unit, $ 24,000 multiplied by 20 for U.S. $ 480,000 in gross income potential.

investment property

2
Determines the percentage of gross income potential of the property that is lost in vacant units and uncollectable rents. Multiply this percentage by gross income to calculate the potential loss of property vacancy and collection. The example assumes that the property lost 7 percent of its gross income potential in vacant units and uncollectable rents. Multiply 7 percent, or 0.07, to U.S. $ 480,000 for U.S. $ 33,600 in vacancy and collection losses.
3
Subtract the vacancy and collection loss of potential gross income to calculate the gross cash income. In the example, subtract U.S. $ 33,600 U.S. $ 480,000 for U.S. $ 446,400 in gross cash income.

4
Subtract the operating expenses of the property of their gross cash income to calculate your net operating income. Operating expenses include items such as property taxes, wages and supplies. The example assumes that the operating costs of the property are $ 140,000. Subtract $ 140,000 U.S. $ 446,400 U.S. $ 306,400 for in NOI.

5
Divide the NOI of the property for its market value to calculate your return on investment. In the example, if the market value of the property is $ 3.4 million, U.S. $ 306,400 divided by $ 3.4 million to get 0.09, or 9 percent of ROI.