1. What is Return On Investment (ROI)?

ROI (Return On Investment) is a financial metric used to evaluate the efficiency of an investment. It compares the magnitude and timing of gains from an investment directly to the amount invested.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Gain \) — Final value of the investment
• \( Cost \) — Initial cost of the investment

Explanation: The formula calculates what percentage return you've made on your original investment.

3. Importance of ROI Calculation

Details: ROI helps homeowners and investors compare the efficiency of different investments and make informed decisions about where to allocate resources.

4. Using the Calculator

Tips: Enter the final value of your home (or investment) and the initial cost. Both values should be in the same currency (typically dollars).

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI for home investments?
A: In real estate, ROI of 10-15% is generally considered good, though this varies by market and property type.

Q2: Does ROI account for the time value of money?
A: Basic ROI doesn't consider the time period. For time-adjusted returns, consider using Annualized ROI or IRR.

Q3: Should I include all costs in the calculation?
A: For accurate ROI, include all costs: purchase price, renovations, maintenance, taxes, and selling costs.

Q4: How does ROI differ from profit?
A: Profit is absolute dollar amount, while ROI shows the percentage return relative to the investment cost.

Q5: Can ROI be negative?
A: Yes, negative ROI means your investment lost money (final value was less than initial cost).