Understanding ROI Rate

ROI Rate is a key real estate metric used to estimate the total return, i.e. the Net Income + Appreciation (i.e. Price Growth), on an investment property if the home is purchased outright with cash and rented out.

Note: price appreciation projection is based on past history. It is calculated by dividing the property's net operating income (NOI) by its purchase price. The gross income from the property is the money earned from rent. The net operating income is the gross income minus expenses like property tax, insurance, property management fee, money set aside for maintenance, etc. A higher ROI rate generally indicates higher returns but may also imply higher risk.

• Gross Income = Monthly Rent × 12
• Expenses = Property Tax + Home Insurance + Maintenance + Vacancy Loss + Property Management
• Net Operating Income (NOI) = Gross Income − Expenses
• Total Return = NOI + Annual Price Growth
• ROI Rate = Total Return ÷ Price