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Calculating Rental Property ROI: What is the Formula? [Lakewood Ranch Property Management Tips]

Calculating Rental Property ROI: What is the Formula? [Lakewood Ranch Property Management Tips]

Cash flow is critical, but calculating the ROI for your property is one of the most important things you can do to ensure that your rental property is successful. This article will help provide a formula for calculating return on investment and how it can be applied to your Lakewood Ranch or real estate investment property.

Use this information, along with our other Lakewood Ranch property management tips, to make sure that you are maximizing return on investment!

Why Is ROI Important?

Return on Investment (ROI) is essential because this metric indicates how successful you are as a landlord or the success of a specific property. If your return on investment is low, then it may be time to reevaluate your Sarasota property and make some changes so that you can increase the returns.

When rentals don't generate ideal returns, investors fall short of their long-term goals. A rental property with a negative ROI is actually losing money and needs immediate course correction to get back on track.

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How Can Lakewood Ranch Rental Property Owners Calculate ROI?

The formula for calculating ROI is pretty straightforward when you understand the numbers involved.

The most basic ROI calculation starts by taking the total return on the real estate investment property, then subtracting the original purchase cost. Since ROI is a profitability ratio, transform the number you see after performing the calculation into a percentage. So, if your income divided by costs delivers a result of .15, your ROI is 15% on that property.

What Other Factors Should I Include In ROI?

Be sure to factor in any expenses related to the property's operation for an accurate number that reflects the total "costs" versus "income" (including late fees) for the property.

The return on investment calculation should also consider the cost of repairs, vacancy rates, and any rental payments you haven't been able to collect. If you financed the home, you'll also need to include your mortgage payment in the "costs" part of the formula.

For example, if your return is 15%, but you can't collect rent because there's a prolonged vacancy rate or all your properties require continual maintenance to keep operating at that level, then you're looking at an inflated ROI.

Remember: having enough cash flow every month isn't a sure sign of success. Being as accurate as possible when calculating returns helps investors make smart decisions about real estate investment properties. If the numbers aren't right or don't account for significant expenses, you'll believe a property is performing better than it is--and continue losing money!

What Can I Do To Improve ROI?

There are several steps that you can take to improve the returns so that your Lakewood Ranch real estate investment property is successful. There may be a specific facet of your rental property or business operations (such as new amenities) that will need improvement to increase ROI. Or, improvements could include better efficiency and know-how when conducting rental property operations.

If you spend too much time chasing down late rental payments (that you still can't collect) or your DIY maintenance practices cost more than your budget allows, it's time to look at your management best practices and consider professional property management services.

A property manager in the Sarasota area streamlines operations, manages maintenance budgets (and reduces costs), improves on-time rent collection, and screens potential tenants to place quality renters who pay the rent on time!

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Real Estate Investment ROI Isn't Forever

One thing investors can keep in mind if they don't like the ROI numbers they see: today's ROI isn't forever. The same holds true for an excellent ROI! Whether your ROIs suffer or exceed your expectations, the right strategies improve low ROIs or help maintain returns that keep you on track toward your long-term goals.

Partnering with a property manager helps investors pinpoint what needs to improve to boost returns. You might not realize that you have a problem with tenant retention that's costing valuable budget dollars without delivering the income you need. Not taking care of maintenance right away can also lead to expensive repairs and losing tenants, which damages returns.

If your ROIs are good, work hard to keep them that way! Determine what's working well and make sure you maintain that momentum. If you're not sure what you're doing right (or if you can sustain it as you add more rental properties to your portfolio), a Lakewood Ranch property management team can help sustain your returns with expert strategies.

Use ROI and a Lakewood Ranch Property Management Company To Evaluate Success

When you invest in a rental property, it’s important to know how to calculate ROI and maximize your return on investment. This critical metric helps investors analyze success (or failure), then take action to optimize returns that meet their long-term financial goals.

Gulf Coast Property Management can help you calculate accurate ROIs and identify where the right strategies could boost your success. Need assistance to analyze returns and make informed decisions about your rentals? Reach out to our team of experts today

Ready to learn about your property's ROI? Click to try our free Rental Property ROI Calculator!