Return on investment (ROI)

Return on investment is the gain from an investment relative to its cost, expressed as a percentage.

The basic calculation

ROI \= (gain from investment − cost of investment) ÷ cost of investment × 100

Why property ROI is more complex than it looks

Property returns come from several sources simultaneously:

• Rental income after costs
• Capital growth
• Principal repayment (equity built through repayment)
• Tax effects

And because property is leveraged, the return on your capital differs greatly from the return on the asset.

Cash-on-cash return

Often more useful for investors: the annual cash return divided by the actual cash you put in — deposit plus purchase costs. A property returning $3,000 a year cash on $120,000 invested is a 2.5% cash-on-cash return, regardless of what the property is worth.

Common misunderstanding

ROI figures quoted in property marketing are rarely comparable. Some include capital growth assumptions, some do not. Some are on the asset value, some on the cash invested. Some ignore selling costs and tax. Always ask what is in the number.

Include the exit. Commission, marketing, legal and any tax on sale materially reduce a realised return, particularly on a short hold.

Related terms

Last reviewed: 1 August 2026 · General information only, not financial advice.

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