How is return on investment measured?

Return on investment (ROI) is measured as a financial metric that evaluates the probability of gaining a return from an investment, specifically expressed as a percentage of the profit or loss relative to the original investment. In the context of real estate, calculating ROI involves taking the taxable income generated by the property and comparing it to the total amount invested into that property.

This measure provides a clear understanding of how effectively an investment is performing in generating income compared to the initial capital outlaid for acquiring or improving the property. Investors often look for a higher ROI since it indicates a more lucrative investment opportunity.

Factors such as property values over time, mortgage assessments, and future cash flows can inform investment decisions, but they do not directly measure ROI in the same way that comparing taxable income to the amount invested does. The percentage calculated in this manner gives a straightforward reflection of profitability, making it an essential aspect of evaluating real estate investments.