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Return on Investment

Return on Investment (ROI) for an investment property is the ratio of gross profit over the value of the property. For example, a property is purchased for $100,000 and then is later sold for $110,000 giving a gross profit if $10,000. The ROI is therefore 10%.

If the property had attracted a mortgage of $90,000 from a bank and a deposit of $10,000 from the investor's own funds then the Cash on Cash Return would, in contrast to ROI, be 100%. This is because this ratio measures the actual amount invested from the investor's own money over the gross profit earned from the property sale. In this case the investor earned $10,000 from a desposit of $10,000.