How to Calculate the Return on Investment

Real estate can be an excellent addition to an investment portfolio, especially for investors who are looking to diversify beyond stocks and bonds. People will always need a place to live, and there is a finite amount of land available to work with.

However, just like with other types of investments, you can’t assume that any one property will provide the return you are looking for.

It can be hard to decide whether a real estate investment is worth it. One of the most important pieces of information that can help you make a good decision is the expected return on investment.

What is Return On Investment?

Return on investment (ROI) is a popular metric that investors and financial professionals use to estimate how profitable an investment will be. It’s a ratio that compares the gain from the investment to its cost, although it is usually expressed as a percentage.

ROI calculations are used with all kinds of investments, including real estate and stocks. Different factors will affect the ROI for different types of investments, but the basic formula is the same.

Why ROI Matters

While ROI is not always as easy to calculate as it may seem at first glance, it is still a relatively simple and easy-to-understand metric. Its simplicity has made it a very popular measure of profitability in many different settings.

Investors often use ROI calculations to evaluate investment opportunities and compare between similar properties. While the metric has its limitations, such as not considering the risk or the holding period of the investment, it’s still a fairly intuitive metric that many people prefer to use as they evaluate investments.

A disadvantage of ROI calculations is that they don’t take into account the length of time the investment is held. If you are comparing investments that will be or have been held for different amounts of time, you may want to use a different profitability measure, such as the internal rate of return (IRR).

How to Calculate Return On Investment

At first glance, the formula to calculate return on investment looks simple. It can be expressed like this:

However, multiple factors play into the gain from investment and cost of investment, which means calculating the return on investment for a property can be fairly complex. It’s not simply a matter of dividing rental income by the initial price you paid on your investment.

Here are a few pieces of information that are likely to factor into a property’s ROI:

The initial value of the investment. ROI calculations depend partially on the value of the property or holding at the time the investment was made.
The final value of the investment. If the value of a property increases, that increase will add to the investor’s wealth; if the value decreases, the investor has effectively lost money, though that loss is not realized until the investor sells the property. Many people take changing property values into account when calculating ROI.
The cost of the investment. ROI is calculated relative to the initial price the investor paid to acquire it, which is not always the same as the initial value, especially in cases where a mortgage is involved.
Rental and other income. The most significant factor in your ROI calculation, aside from the property value, is income. To calculate ROI, you will need to calculate the projected monthly income from rent payments and any other sources while taking into account the anticipated vacancy rate percentage.
Maintenance and repair costs. Repairs can be costly and may eat into your returns, especially if you underestimated regular maintenance costs.
Mortgage numbers. Mortgage payments and related costs will lower the amount of income you get to keep from the property. The loan terms, closing costs, down payment, and interest rates will all factor into your ROI.
Other expenses. Property taxes, HOA dues, property management, utilities, and insurance can all factor into your final ROI.

To calculate the ROI of a property, subtract the initial value of the investment from the final value of the investment, add any income received (including rent), subtract any expenses (including maintenance, repairs, property taxes, and insurance), and divide the whole total by the cost of the investment. You can then multiply this number by 100 to express the ROI as a percentage.

If you own a rental property, you may want to use a calculator like this one to estimate the ROI of your property.

What is a Good ROI for Real Estate Investors?

Real estate, including commercial real estate, can provide some of the best risk-adjusted returns in the investing world. Between monthly cash flow from tenants, tax advantages, and appreciation over time, real estate is often a major source of wealth.

For most rental properties in the U.S., a 5 to 10% ROI would be an acceptable range. An excellent ROI may be above 10%. However, these numbers may change depending on your local real estate market and the level of risk you are willing to take on.

Be aware that properties that look great at first glance may come with hidden fees and expenses. It’s important to look at every source of income and every type of expense you can expect to pay when comparing the ROI on different properties.

Different types of real estate will create ROI in different ways. A multifamily apartment complex will provide cash flow primarily from rent payments, but some income may come in from additional sources such as guest parking and amenity usage payments. A single-family home will usually provide income from rent payments alone, and that income may be more vulnerable to vacancy and related challenges. A short-term rental property may not provide consistent income.

With a strong ROI, real estate can increase your wealth so you can save for a better retirement and build a legacy to leave to the next generation.

Learn More About Real Estate Investing From CEP

The CEP team has been successfully investing in real estate for four decades. We regularly share articles about common investing terms, practices, strategies, and trends on our blog and in our newsletter.

To learn more about real estate investing, including multifamily investments, we encourage you to check out the CEP blog or subscribe to our newsletter.

INVESTMENT OFFERINGS

Nich Carlsen

Nich Carlsen joined the team at CEP Multifamily in 2023 as an Investment Analyst and holds primary responsibilities for sourcing, researching, and underwriting new markets and opportunities throughout the West. He is also responsible for analytics and research in support of Capital Markets, Asset Management, and Dispositions. Prior to joining CEP, Nich held positions in Research at Colliers and VTS covering multiple commercial property types.

In his spare time Nich enjoys golf, ocean fishing, travel, and supporting all things Oregon State athletics.

Nich graduated from Oregon State with a BS in Economics and is a member of the Urban Land Institute.

Jeff Anderson

In his role as Director – Capital Projects for CEP Multifamily, Jeff is responsible for the planning, management, and execution of all capital improvement and deferred maintenance projects, in addition to closely collaborating with the Property Operations team on asset preservation and best practices. Jeff joined CEP Multifamily in 2022 as part of our pursuit to expand our operational capabilities and to bring project management and asset preservation under our in-house suite of services to better serve our growing portfolio.

Prior to joining CEP, he spent over 14 years with Kennedy Wilson, a global real estate investment company, working in various Project Management roles for their Commercial Investment, Property Services and Multifamily divisions. Most recently he served as the Multifamily Group’s Construction Manager for their 20,000+ unit portfolio in the Western United States.

Jeff attended Washington State University where he graduated Magna Cum Lade earning his BA in Business with an emphasis in Real Estate and a minor in Finance.

When he is not working, Jeff can be found relaxing on Whidbey Island, working on house projects, skiing or enjoying the various water activities the PNW has to offer.

Mark Whitcomb

As Director – Property Operations for CEP Multifamily, Mark leads the day-to-day operations of CEP Residential’s expanding multifamily portfolio. Mark is committed to executing core processes and fostering the growth of his CEP Residential teammates in the pursuit of asset and property management alpha.

Mark began managing his first property in 2001, two years after beginning his career in property management as part of an on-site team. Over the course of the next 20+ years, he worked in multiple capacities and markets throughout Washington, Oregon, Montana, and Virginia with portfolios totaling over 2,500 apartment homes and 49 communities.

Mark has always been passionate about developing both people and leadership skills through local and national multifamily housing associations. He was recognized as Property Manager of the Year in 2016 by Washington Multi Family Housing Association (WMFHA) and went on to obtain his NAA CAM and CAPS credentials by 2017. He spent two years as a Chairman on the Career Development Committee through WMFHA before being nominated and awarded membership to the NAAEI faculty in 2018. This allows Mark the opportunity to mentor emerging industry professionals seeking their own designations.

Mark has been married to his wife, Shea, since 2019. Together, they enjoy travel, cheering for their Seattle sports teams, and exploring the outdoors of the Pacific Northwest with their two dogs.

Jessica Disman

Jessica Disman joined CEP Multifamily in January of 2022 as Director of Capital Markets and Investor Relations and is responsible for new investor acquisitions.

She brings over 25 years of experience in sales and marketing in the investment and real estate industry. Most recently she spent 8 years at Broadmark Realty Capital Inc. and Broadmark Capital LLC, raising capital for a series of private lending REITs that ultimately led to the IPO of the company.

Jessica attended Bryn Mawr College where she earned a BA with a double major in English and Fine Art.

An artist at heart, Jessica enjoys drawing and painting and has paintings in collectors’ homes nationwide.

Karin Christianson-Hart

Karin Christianson-Hart serves as VP Finance & Administration for CEP Multifamily. As a member of the CEP Team, Karin oversees all finance, HR, risk management and administrative support for both CEP Multifamily and CEP Residential, the in-house property management division.

Karin has many years of property management experience from small startup firms to a large regional company. Problem solving, tactical management of multiple teams and a working knowledge of day-to-day business operations are strengths that Karin brings to the table. Other areas of expertise include captive insurance management and family office accounting for principal partners.

Karin earned bachelor’s degrees in Accounting and Business Administration from Central Washington University.

With a heart for missions Karin has most recently served on the Board of Hands for Peacemaking, a nonprofit that provides high efficiency wood burning stoves and clean water systems to the Mayan population in the highlands of Guatemala. Financial management support has also been provided to the Snohomish County Economic Alliance in its infancy along with a nonprofit football academy.

Outside of work Karin enjoys riding motorcycles, camping, and travelling with her husband.

Shawn Hoban

For over three decades, Shawn has been responsible for establishing and growing each of the operating businesses in The Coast Group of Companies and Hoban Family Office. It all started in 1987 when he co-founded Coast Property Management alongside his brother Tom after identifying the need for a high performing, values-based property management company. Coast has long since grown into The Coast Group which is a vertically integrated, privately owned family of real estate companies. Coast is one of the region's largest and most respected real estate services firms of its kind with offerings in property management, facility services, specialized construction, advisory, and investment services.

Shawn is an integrator and strategist for the Hoban's various ventures with a particular gift of taking complicated situations and making them executable. A leader with strong character, Shawn also
possesses a competitive streak that has shaped the success of their ventures together.

The Hoban Family Office, the holding company for the operating businesses, brings innovative ideas to the commercial real estate industry through Coast Innovation Center while serving the charitable causes of the Hoban family and the Coast Group. He is passionate about identifying and developing talent to
support their businesses, while mentoring the next generation of leaders inside and outside of his family.

His service and awards include Top 40 Under 40 Business Executive by the Puget Sound Business Journal, Director for The University of Notre Dame Alumni Association, Archbishop Thomas J. Murphy High School Board of Trustees Chair and Board of Regents, Fulcrum Foundation Board of Trustees, Vistage, Entrepreneur’s Organization (EO), and many other community organization throughout the Pacific Northwest and U.S. The brother’s ventures together earned them two very prestigious awards: The Washington State Family Enterprise Institute’s Family Business of the Year and The University of Notre Dame Alumni Association of Seattle co-alumni of the year.

Shawn holds a Bachelor’s degree in Business Finance from the University of Notre Dame and is both a Certified Commercial Investment Member (CCIM) and a Certified Property Manager (CPM) with the Institute of Real Estate Management (IREM).

Shawn and his wife, Kathie, enjoy travel and outdoor recreation on the Puget Sound while following the active lives of their four adult daughters and a growing generation of grandchildren.

Tom Hoban

Tom has over thirty years of experience as a property manager, real estate advisor, and investor. In 1987, he co-founded Coast Property Management alongside his brother Shawn after identifying the need for a high performing, values-based property management company in the market. Coast has long since grown into The Coast Group, which is a vertically integrated, privately owned family of real estate companies encompassing property management, facility services, specialized construction, advisory, and investment companies. Today, The Coast Group is one of the region’s largest and most respected
real estate services firms of its kind as it is able to leverage the different companies' resources to provide the best possible returns for clients.

Built as an extension of their humble servant leader view of themselves, the Hoban brothers and their executive leadership teams have become synonymous with excellence, innovation, and reliability. Along the way, the brothers have been recognized for their professional accomplishments and work in the communities they serve, earning them the co-alumni of the year award from the University of Notre Dame alumni association and The Family Enterprise Institute’s Washington Family Business of the Year.

Over the years, they invited others who possessed complimentary if not superior talents to join them as partners and co-leaders in the Coast Group of Companies. In 2017, they formed The Hoban Family Office (HFO) to create a platform for innovation (Coast Innovation Center), talent development, and leadership in service to the Coast Group of Companies, their families and the communities they serve. It also serves as their charitable arm, with a focus on service to the poor and vulnerable and development of tomorrow’s leaders.

Tom leverages his vast network, engaging personality and refreshingly transparent approach into many venues, including his long-running column in the Herald Business Journal, as a freelance writer and as a guest speaker or lecturer all while serving on several boards or advisory functions, including Santa Clara University Real Estate School Advisory Board, Washington State University – Everett, University of Portland board of trustee’s, The Washington State Governor’s Affordable Housing Advisory Board, The
Commercial Broker’s Association of Puget Sound, Archbishop Murphy High School (Everett, WA), The Boys and Girls Clubs, chairman for the Snohomish County Airport Commission, The City of Everett
Economic Development Advisory Council, and others. The brother’s ventures together earned them two very prestigious awards: The Washington State Family Enterprise Institute’s Family Business of the Year
and The University of Notre Dame Alumni Association co-alumni of the year.

Tom graduated from The University of Notre Dame with a BA in Finance. A former coach, scoutmaster, and basketball referee, in his spare time today Tom continues to play recreational basketball, remains active in his church and enjoys time with his wife, two sons, and daughter on the Puget Sound.

Josh Jansen

Josh Jansen has over 20 years of multifamily investment experience, both as a broker and principal. As CEO, President, & Managing Partner of CEP Multifamily (CEP), Josh leads the firm’s strategic growth and acquisition, disposition, and asset management functions. Since joining CEP as a principal in 2012, Josh has played an integral role in growing the firm’s acquisition and capital raising volumes tenfold. Prior to joining CEP, Josh was a top national multifamily broker at Sperry Van Ness for multiple years.

Josh is active in his community and spent 9 years as a volunteer varsity football coach at a local high school. Josh also served as a founding board member of the Private Enterprise Coalition of Snohomish County, and was the Founder and Board Chair of Wildcat Football Academy (WFA), a Mill Creek, WA-based 501(c)3 nonprofit youth sports organization.

Josh attended Occidental College in Los Angeles, where he earned a BA in Politics, as well as All-American honors as captain of the football team.

Josh, his wife Cheryl, and their two children enjoy traveling, hiking, and snow and watersports.

Mike Harmon

In 2004, Mike joined the Coast Group of Companies as CFO and Managing Partner of Coast Equity Partners. Mike’s role is to drive the growth of Coast Equity Partners through the acquisition of investment properties that produce outstanding returns for our clients.

Mike brings many years of business leadership, entrepreneurial drive, and real estate experience to the table. He has held critical roles in the strategic management of high growth companies and early-stage technology start-ups. From raising capital on Wall Street to buying his first rental property while still in college, Mike brings a unique broad range of talents to Coast Equity Partners.

Mike’s entrepreneurial spirit is grounded in a solid business background. He has designed and managed the development of several mission-critical business systems for fortune 500 companies, participated in

the creation of new businesses and nurtured new growth opportunities for existing businesses. Mike has created and grown departments, successfully identified, negotiated, and closed strategic partnerships, managed key client relationships and secured new capital investments for the companies he has helped lead.

Since 1992, Mike has been engaged in the identification, acquisition and rehabilitation of real estate with excellent investment potential. His portfolio of properties includes residential holdings as well as rental properties in various markets throughout the Pacific Northwest and United States.

Mike holds a BS in Finance from San Diego State University and an MBA with concentrations in Marketing and Management from the University of Notre Dame.

Mike enjoys travel, youth coaching, winter sports, water recreation, golf and fishing. He lives with his wife and four sons in North Seattle and is active in his church, children’s schools and local community.

How to Calculate the Return on Investment for Your Real Estate Property