How to measure ROI for an investment property

Measuring the return on investment (ROI) for an investment property is crucial to evaluate its profitability. Here's a concise guide on how to calculate it:

1. Calculate the annual rental income

Start by determining the total rental income you expect to receive in a year. As an example, if the weekly rent is $680, the annual rental income is:

Annual rental income = $680 x 52 weeks = $35,360

2. Determine your annual expenses

Next, calculate the annual expenses, including utilities, insurance, maintenance, property management fees and potential vacancy costs. Assume these expenses total $3,500 annually.

3. Calculate Net Income

Subtract the annual expenses from the annual rental income to get the Net Income:

Net income = $35,360 - $3,500 = $31,860

4. Determine the total investment

This includes the property's purchase price and any additional costs such stamp duty and legals. Let's assume a total investment of$720,000.

5. Calculate the ROI

Finally, divide the Net income by the total investment and multiply by 100 to get the ROI percentage:

$31,860 / $720,000 x 100 = 4.43%

Conclusion

By following these steps, you can accurately measure the ROI for your investment property, helping you make informed decisions and optimise your investment strategy.

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