Introduction
If you’re thinking about investing in real estate, there’s one number you need to understand before anything else: ROI, or Return on Investment.
ROI is how investors measure whether a rental property is worth it. It’s the difference between making a smart investment—and buying a money pit. But don’t worry—you don’t need to be a math wizard to figure it out. Let’s break it down.
What Is ROI in Real Estate?
ROI (Return on Investment) measures how much money you earn from a property compared to how much you put into it.
Here’s the basic formula:
ROI = (Annual Return / Total Investment) × 100
So if you made $6,000 a year in net income from a property and you invested $30,000 total, your ROI would be:
(6,000 / 30,000) × 100 = 20% ROI
That means you’re earning 20% of your original investment back each year. Not bad!
Step-by-Step: How to Calculate ROI on a Rental Property
Let’s break it into three simple steps.
1. Know Your Income
Start with your gross rental income (total rent collected annually).
Then subtract expenses to find your net income:
Mortgage payments
Property taxes
Insurance
Maintenance
Property management fees (if any)
Vacancy rate (estimate 5–10% loss per year)
➡️ Net Income = Gross Rent – Expenses
2. Add Up Your Investment
This includes:
Down payment
Closing costs
Renovations or repairs
Any other upfront expenses
➡️ Total Investment = All upfront costs to acquire and prepare the property
3. Plug It Into the Formula
Now use the ROI formula:
ROI = (Net Annual Income / Total Investment) × 100
The result gives you a percentage—your annual return on every dollar you invested.
What’s a “Good” ROI?
This varies by market and risk level, but here’s a general rule of thumb:
8–12% ROI – Solid for most long-term rental properties
12%+ ROI – Very strong return (often found in emerging markets or value-add deals)
6–8% ROI – Acceptable in high-demand areas with long-term appreciation potential
Keep in mind: ROI isn’t the only factor. You should also consider property appreciation, tax benefits, and long-term equity growth.
Pro Tips to Maximize Your ROI
✅ Buy Below Market Value – Look for off-market deals or fixer-uppers
✅ Minimize Vacancies – Keep tenants happy and units filled
✅ Raise Rents Strategically – Don’t undervalue your property
✅ Watch for Hidden Costs – Budget for capital expenses (roof, HVAC, etc.)
Final Thoughts
Understanding ROI is the key to making confident, profitable real estate decisions. Whether you're analyzing your first rental or scaling your portfolio, ROI helps you stay focused on what really matters—your bottom line.
As a real estate professional, I can help you:
Run ROI numbers on properties in our local market
Identify high-performing investment opportunities
Avoid costly rookie mistakes
Interested in learning more or purchasing a rental property ?
✨ Let’s connect:
📧 dexter@dexterwilkie.com
📞 902.314.9686
🌐 dexterwilkie.royallepage.ca
You only get one first impression —
Let’s make it unforgettable.
- Dexter