What is ROI and how to calculate it

You have certainly heard the term return on investment while browsing property for sale in Dubai or checking available real estate investments, most likely you came across it by the common abbreviation, ROI. But what does this term mean and how is it useful when determining the profit of your investment? and how can you benefit from this concept in deciding which investment is best for you?

Return on investment (ROI) is one of the measures that are used to know the efficiency of an investment. Besides comparing the different investments taking the ROI ratio as a tool that allows you to know which apartments for sale in Dubai gives the desired results and brings you greater benefit and higher net profit while taking into account all the expenses and payments related to each project during the whole period of the investment, starting from the moment of purchase.

The return on investment is used mainly to reveal the profitability of the investment activity and to show you the relationship between the amount you invested in the apartments for sale in Dubai and the actual profit it gains over the entire period of investment.

Return on investment is not the only measure that is taken into account in analyzing profits in any investment business, but it is one of the most important ones. Its importance comes from the accuracy of the value of the profit because it does not neglect any expenses related to investment, whatever they are, and thus it provides a comprehensive picture of the effectiveness and efficiency of your investment.

It should be mentioned that many people confuse the return on investment with the yield, which are two different ratios. Each of these ratios can be used to know useful information about the profitability of the investment and help you decide which property for sale in Dubai meets the goal you are aiming for regarding the investment results. However, it is not a good measure to put the rate of the yield of an investment in comparison with the ROI of another investment to know which of them gives you a higher profit, as this comparison will give you false and misleading information and may distance you from the higher-return investment.

It is also worth noting that there is another ratio you would come across along your search for apartments for sale in Dubai which is also used in calculating the performance and efficiency of an investment, it is the return on equity (ROE), which is another important and very useful measure in knowing the most beneficial investment. We will talk about it broadly and compare it to the ROI and the yield in a later article.

How is return on investment calculated and what exactly are the elements to be taken into account when calculating it?

The ROI is the ratio between the direct profit of the investment and the costs associated with it. Which is calculated by finding the difference between the current value of the investment and the costs related to the investment divided by the total cost of the property.

The costs that should be included are everything related to the investment like maintenance, insurance, or management expenses and other expenses. While the total costs include all the amounts that have been paid to purchase the property for sale in Dubai, like the total value and the fees such as transfer fees, agency fees and others. The result is a percentage that enables you to measure the net benefit that your property for sale in Dubai has made for you.

It is important when comparing different projects depending on the ROI ratio for each of them to note the time period the calculated return covers. For example, if you invest in two different projects, one of which extends over one year, giving an ROI of 15%, and the other project extends over three years but gives you an investment return of 25%, you cannot say that the second project is more profitable than the first. Whereas, if you calculated the annual return of the investment for the second project by dividing the percentage by the number of investment years, i.e. three years, the result would be 8.3%, and therefore the net annual percentage provided by the first investment of the return is higher than the annual percentage of the second investment. This information is considered important and useful when comparing several projects and effective tools in knowing which investments are worth proceeding with.

Knowing all this information and how to calculate each of these beneficial ratios is extremely important when you are considering entering into a new investment because of its great role in defining the project that guarantees you sustainability and a higher benefit.

 

For more related topics click on the links below: 

What Is DLD And What Does It Do?

Choosing Between Off-Plan And Secondary Market Properties

What Is RERA Real Estate Regulatory Agency