valuation
return on investment
Return on investment, or ROI, measures the profitability of an investment by comparing the gain or annual income to the amount invested, expressed as a percentage. In real estate, investors often calculate a cash-on-cash return by dividing annual pre-tax cash flow by the cash they actually invested. ROI helps compare properties with different prices and financing structures.
- Exam tip
- Use the formula: return divided by investment equals rate. Be sure to divide by the cash invested, not the property price, when the question asks for cash-on-cash return.
- Example
- An investor puts $50,000 down on a rental that produces $5,000 of annual cash flow, earning a 10 percent cash-on-cash return.
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Last verified: 2026-10-23