What is Investment Return?§
Investment return is the percentage profit an investor realizes from an investment. This metric primarily accounts for the net proceeds after selling a property. However, it can also encompass the regular income received from leasing the property.
When calculating an investment return, several factors must be considered, including the purchase price, carrying costs for mortgage payments, insurance, taxes, and any additional money invested in property improvements.
Real-life Example§
Let’s say an investor purchases a property for $100,000 and invests an additional $25,000 in improvements. During the improvement period, carrying costs mount up to $5,000. Therefore, the total investment in the property sums up to $130,000.
The property is eventually sold for $150,000. To calculate the investment return:
- Subtract the total investment ($130,000) from the sale price ($150,000) to get a profit of $20,000.
- Divide the profit ($20,000) by the total investment ($130,000).
This calculation reveals an investment return of 15.3 percent.
Why It Matters:§
Understanding and calculating your investment return helps you ascertain the profitability of your investments. Armed with this knowledge, you can make informed decisions to optimize your investment strategies and enhance your financial growth.
Related Terms: ROI, investment analysis, property investment, real estate finance.
