--- title: How To Calculate Return On Real Estate Investments description: Calculating the return on your real estate investment property is important to understand how well it is performing. image: https://www.realized1031.com/hubfs/Images/photo/abstract/investment-papers-ipad-portfolio-IS-1138898580.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # How To Calculate Return On Real Estate Investments Posted Aug 14, 2020 ![investment-papers-ipad-portfolio-IS-1138898580](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/investment-papers-ipad-portfolio-IS-1138898580.jpg?width=751&name=investment-papers-ipad-portfolio-IS-1138898580.jpg) Calculating the return on your real estate investment property is important to understand how well it is performing. There are a number of metrics used by real estate professionals to determine the performance of a property. In this article, we’ll start with some return on investment (ROI) basics and then go into calculations that get progressively more involved, as we factor in more components of return. ### Return On Investment (ROI) Return on investment (ROI) measures the gain or loss since acquiring an investment or during some specific period of time. Either way, it is a measure of performance across a period of time.  The ROI calculation is a simple formula: *Net Return on Investment / Cost of the Investment * 100* Net Return is equal to (Current Value - Initial Value). Another way of stating ROI is: *(Current Value - Initial Value) / Cost of Investment * 100* As an example, let’s say we invest $100,000 in a property. One year later, the property is worth $104,000. The return for this property is: 104,000 - 100,000 = $4,000 = Net Return on Investment Then: 4,000/100,000 * 100 = 4% = ROI The ROI is 4%. Since this return has been calculated across one year, that is also the property’s annualized [rate of return](https://www.realized1031.com/glossary/rate-of-return) (ROR). ### Cash-on-Cash Return Although effective for giving you a sense of appreciation of a real estate investment, ROI just scratches the surface when showing the return an investment produces. Cash-on-cash return is another metric typically used to assess the yearly profit an investment produces. Cash-on-cash return is simply the net distribution an investment produces divided by the initial equity investment. Net distribution is the cash amount left at the end of the day after all expense items are paid from income (or rent). Expense items that are seen in a real estate investment oftentimes include: - Mortgage payments (interest and principal) - Property taxes - Insurance - Property management - Repair reserves - Asset management fees Here’s an example calculation of a cash-on-cash return: Annual Rental Income: $1,200,000 Annual Expenses: $1,000,000 Net Distribution: $200,000 The property price for this example was $12,000,000 and the initial cash outlay was $2,400,000. The cash-on-cash return is $200,000/$2,400,000 = 8.33%. Is this a good return? To figure that out, you’ll need some benchmark (i.e., comparable properties) to compare against. Comparable properties are typically those that are geographically similar, of the same property type, and have a similar business strategy, whether that be a stabilized or a value-add play. ### Cap Rate Cap rate or [capitalization rate](https://www.realized1031.com/glossary/capitalization-rate-cap-rate) is another performance metric that measures an investment property’s unlevered [rate of return](https://www.realized1031.com/glossary/rate-of-return). The formula for cap rate is: Net Operating Income (NOI) / Purchase Price NOI is strictly annual operating income less property level expenses. To calculate it, we do not consider expenses related to mortgage interest or principal payments: NOI = Effective Gross Income - Property Operating Expenses Once NOI has been calculated, cap rate is an easy number to reach. This might look similar to the cash-on-cash return calculation, but there are a couple of differences. One is that we are not including the mortgage in expenses, hence why the cap rate represents the unlevered rate of return. The other is that the denominator is the purchase price of the property rather than just the equity investment. Figuring out the return on investment for real estate is just as important as figuring the return on any other investment. You want to know how well the investment is performing compared to its peers or some benchmark. Then you can determine if the investment is worth continuing to pursue or if it is time to consider a better opportunity. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. These hypothetical examples are for demonstrating mathematical principles. They do not illustrate any investment products and do not show past or future performance of any specific investment. Learn Ways To Help Build Long-Term Real Estate Wealth [![Get Tips For Managing Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-250c.jpg?width=250&height=250&name=IPWM-eBook-250c.jpg "Learn new ways to use real ...") ](https://www.realized1031.com/blog/how-to-calculate-return-on-real-estate-investments#blogform) Download eBook ---   --- ### Get Tips For Managing Real Estate Wealth ![Learn Ways To Help Build Long-Term Real Estate Wealth](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/IPWM-eBook-550.jpg?width=550&height=650&name=IPWM-eBook-550.jpg) Learn new ways to use real estate to pursue your wealth goals. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "Calculating the return on your real estate investment property is important to understand how well it is performing. There are a number of metrics used by real estate professionals to determine the performance of a property. In this article, we’ll start with some return on investment (ROI) basics and then go into calculations that get progressively more involved, as we factor in more components of return. Return On Investment (ROI) Return on investment (ROI) measures the gain or loss since acquiring an investment or during some specific period of time. Either way, it is a measure of performance across a period of time. The ROI calculation is a simple formula: Net Return on Investment / Cost of the Investment * 100 Net Return is equal to (Current Value - Initial Value). Another way of stating ROI is: (Current Value - Initial Value) / Cost of Investment * 100 As an example, let’s say we invest $100,000 in a property. One year later, the property is worth $104,000. The return for this property is: 104,000 - 100,000 = $4,000 = Net Return on Investment Then: 4,000/100,000 * 100 = 4% = ROI The ROI is 4%. Since this return has been calculated across one year, that is also the property’s annualized rate of return (ROR). Cash-on-Cash Return Although effective for giving you a sense of appreciation of a real estate investment, ROI just scratches the surface when showing the return an investment produces. Cash-on-cash return is another metric typically used to assess the yearly profit an investment produces. Cash-on-cash return is simply the net distribution an investment produces divided by the initial equity investment. Net distribution is the cash amount left at the end of the day after all expense items are paid from income (or rent). Expense items that are seen in a real estate investment oftentimes include: Mortgage payments (interest and principal) Property taxes Insurance Property management Repair reserves Asset management fees Here’s an example calculation of a cash-on-cash return: Annual Rental Income: $1,200,000 Annual Expenses: $1,000,000 Net Distribution: $200,000 The property price for this example was $12,000,000 and the initial cash outlay was $2,400,000. The cash-on-cash return is $200,000/$2,400,000 = 8.33%. Is this a good return? To figure that out, you’ll need some benchmark (i.e., comparable properties) to compare against. Comparable properties are typically those that are geographically similar, of the same property type, and have a similar business strategy, whether that be a stabilized or a value-add play. Cap Rate Cap rate or capitalization rate is another performance metric that measures an investment property’s unlevered rate of return. The formula for cap rate is: Net Operating Income (NOI) / Purchase Price NOI is strictly annual operating income less property level expenses. To calculate it, we do not consider expenses related to mortgage interest or principal payments: NOI = Effective Gross Income - Property Operating Expenses Once NOI has been calculated, cap rate is an easy number to reach. This might look similar to the cash-on-cash return calculation, but there are a couple of differences. One is that we are not including the mortgage in expenses, hence why the cap rate represents the unlevered rate of return. The other is that the denominator is the purchase price of the property rather than just the equity investment. Figuring out the return on investment for real estate is just as important as figuring the return on any other investment. You want to know how well the investment is performing compared to its peers or some benchmark. Then you can determine if the investment is worth continuing to pursue or if it is time to consider a better opportunity. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. These hypothetical examples are for demonstrating mathematical principles. They do not illustrate any investment products and do not show past or future performance of any specific investment.", "articleSection" : [ "Real Estate Investing" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2020-12-03T17:49:53+0000", "datePublished" : "2020-12-03T17:49:53+0000", "description" : "Calculating the return on your real estate investment property is important to understand how well it is performing.", "headline" : "How To Calculate Return On Real Estate Investments", "image" : { "@type" : "ImageObject", "height" : 499, "url" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/investment-papers-ipad-portfolio-IS-1138898580.jpg", "width" : 751 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/how-to-calculate-return-on-real-estate-investments", "name" : "How To Calculate Return On Real Estate Investments", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://f.hubspotusercontent10.net/hubfs/733513/Images/photo/abstract/investment-papers-ipad-portfolio-IS-1138898580.jpg" } ```