How to Find Your Return on Investment (ROI) in Real Estate

Entering the world of real estate investing is a great way to build wealth. However, in order to succeed you must find profitable real estate investments. The goal of real estate investing is realizing a good profit. Understanding the return on investment (ROI) concept and how to calculate it is critical to meeting that goal.

Calculating ROI can be a helpful tool in gauging the value of an investment. You're not buying property to lose money, and you'll want a rough idea of how much you stand to gain if you decide to move ahead with the purchase. Bellow, Canadian businessman Jack Bistricer, explains how you can determine your Return on Investment (ROI) in real estate.

How to calculate the real estate profitability of a property?

The profitability of a real estate can be calculated after having sold the property, since this way the operation can be carried out with the exact amount for which the property was sold.

In this sense, Jack Bistricer adds, the return on investment when selling a property is calculated with the following operation:

(Final sale price - investment price / investment price) x 100

Example: If you bought an apartment for $ 135,000,000 and with the help of the capital gain it was sold for $ 148,000,000, the return on the investment is obtained as follows:

(148,000,000 - 135,000,000 / 135,000,000) x 100 = your profitability was 9.62% and your profit was $ 13,000,000

Sometimes the property is not sold at the price that the market demands, which is why sometimes you can get much less, and at other times, depending on the geographical and social context, much more.

As a  savvy real estate investor, Jack Bistricer, Chairman and CEO of the Talisker Club, always buys investment properties that yield a good return on investment.  Here are the three factors to know if the property will be profitable:

Selection of properties

Selecting the right property is quite important. Location is also an important factor that property investors should take into account before making any investment decision if they want to succeed in the business. Location determines many aspects related to real estate investments. In that regard, the best advice that Jack Bistricer can offer is to buy an investment property are where demand for real estate investing is higher than the available supply of properties.

Searching on Internet platforms, specifically in real estate portals or reaching put to a professional real estate agency are good options. Compare real estate properties with similar characteristics: rooms, bathrooms, appliances, common areas, outdoor space.

 

Real purchase price

The main key is to know how much the price can be lowered during the negotiation. For this, you can resort to official studies such as notarial ones, to find out what is the real price with which the houses in the sector that interest you are sold.

Most of the professionals in the real estate sector estimate that the percentage of discount compared to the initial price is between 10% and 20%.

The most practical formula

When the asking price is known, a profitability calculation must be carried out. Jack Bistricer, a real estate professional affirms that "a home must have an annual profitability of at least 5%. Anything bellow that it is not worth buying".

 

The security of investment in real estate profitability

Investments in the real estate sector continue to position themselves as one of the most reliable assets on the market. Times are constantly changing and people who dare to seek new opportunities no longer place their decisions on instincts. Now the world has vast access to information and expert advice that gives us the foundation to make good decisions.