Shawn Boday describes how to calculate the ROI on a rental property. To learn more about Shawn Boday visit ShawnBoday.org.

1. by Shawn Boday | Nov 4, 2019 | Business, Real Estate, Real Estate Investing, Shawn Boday
Rental properties can be a great asset to investment portfolios, particularly if they are
successfully managed. There are many different types of real properties that can be converted
into rentals. Commercial properties, when fully occupied, generally pay higher dividends for
investors. Residential rental properties are said to be an addictive habit because investors
purchase additional rentals consistently over time. Whether an investor chooses to select
commercial, residential, or other property as a rental, there are some considerations that should
be carefully weighed.
The return on investment (ROI) will be greatly impacted based on a number of different factors.
Investors cannot simply calculate the purchase price of the real property and the average monthly
lease income for the property. Many other conditions exist and must be factored into an accurate
ROI on rental property.
The overall ROI depends in part on the geographical location of a particular property. There are
various local and state ordinances that require lot rent, property tax, school tax, and other fees to
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2. be paid by the land or property owner. These may seem minute, but they will impact the overall
return on investment. This calculation can be simpli ed by the net income gain of the property
divided by the cost of the property. Net income gain is basically the income generated minus the
cost of the property. These calculations can be based on monthly or annual gures and the end
result will be the same.
One major area that many landowners and property managers fail to consider when calculating
rental income are the essential costs associated with the building or property. Commercial
properties of course entail much higher overhead costs than residential properties, but these
elemental items should be considered for all types of real property. Second to required insurance,
routine maintenance and repairs are among the highest expenses that property owners incur.
Maintenance and repairs on a commercial building may require certi ed repairs that are led with
a city or county records of ce. Monthly utilities such as gas, electric, water, sewer, and trash pick
up are generally required whether the property is currently being rented or not. Unless these are
passed along to tenants, the property owner must deduct these monthly expenses from their net
return on investment.
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