In the case of rental properties, calculating the return on investment (ROI) is essential to determine the profitability of an investment. To do this, subtract the annual rental income from the annual operating costs and divide that number by the value of the mortgage (or how much is left to pay for the loan). Real estate investment trusts (REITs) are companies that own or finance investment properties to generate income. For investors diversifying their portfolio with real estate, it's important to measure ROI to determine a property's profitability.
Through pooled investments such as REITs, investors can diversify their portfolios while maintaining their ROI. To calculate the profit or loss of any investment, first take the total return on the investment and subtract the original cost of the investment. If you learn to calculate how much an investment property can bring you, you're much more likely to make a good investment now and even better in the future. However, to generate income, your rental property must offer a good return on investment (ROI), or you may have to invest too much money with little or no reward.
Just make sure you're consistent when comparing a real estate investment to another investment.
