The return you earn on your investment property (ROI) is an important metric for every real estate investor because it shows you how much money you’re making. Usually, you’ll find it expressed as a percentage or a ratio, and while it seems like it should be a matter of simple math to calculate your ROI, there are several variables that can make analyzing your returns and profits a bit complicated.
When you want to keep it simple, you can divide the amount you’ve earned by the cost of acquiring your asset. That shows you the base ROI.
Earnings / Cost = ROI
The length of your mortgage loan will impact your ROI, as will your cash purchase. Today, we’re providing a high level overview of calculating your ROI, and we’re also sharing a couple of our best ideas for maximizing what you earn.
Evaluate ROI on Rental Homes
The amount of ROI you’re able to earn will depend largely on the Orlando rental market, and that’s because your earnings will depend on how much rent you can charge and how long your vacancy will be.
In the Orlando market and surrounding areas, your ROI will be impacted by the location of your Orlando rental properties and whether you paid cash or have a mortgage. The amount of interest you pay has to be included in your equation as an expense.
Every investor is as unique as each rental property. Your success will likely look much different than the success measured by another investor. You have different goals, different cash positions, and different points of leverage. That’s going to bring different results. When you’re calculating your ROI and evaluating what you’ve earned, don’t fall into the trap of comparing yourself with others. Any time your real estate investment is making money and not losing money, you can feel pretty good about renting out a home that is earning cash flow and growing in value.
Doing the ROI Math
Your first step in determining your ROI is to look at your annual rental income. Perhaps you’re renting out a property for $2,000 per month or $24,000 annually. That’s your income.
This, of course, does not mean you’ve made a $24,000 profit. You have to subtract all the expenditures associated with your rental property. This would include your fixed expenses like mortgage payments, taxes, insurance, and any HOA or condo fees. Then, there are other variable costs to consider like rental property maintenance and vacancy.
The number that remains gives you a general idea of what you’re earning in cash flow. That’s going to contribute to your ROI but remember what really matters is that you’re gaining equity from year to year and at the same time, your asset is appreciating in value.
Increasing ROI for Better Orlando Investment Income
To increase your ROI, you’ll want to avoid vacancy and turnover costs. You’ll want to find a tenant who pays rent on time and takes care of your home. You’ll want to keep the property well-maintained so there aren’t a lot of expensive emergency maintenance costs.
Remodeling your home will ultimately deliver more ROI, but it requires an investment up front. Working with a professional Orlando property management company can positively affect your ROI. Property managers know how to help you earn more and spend less. We’d be happy to talk more about your investment plans and potential. Contact us at RE/MAX 200.