What does ROI mean and how can you use it to make more money?


Simon Misiewicz

8th January 2014

Are you looking to increase your net worth?

Would you like your money to go further?

I have had the pleasure of working with many good property investors. With my help they have understood their numbers much more and their future property investment decisions have been even more portable.

How is this possible? Simple! Understand the term ROI.

Return on Investment (ROI) is the comparison of the amount of net profit that is being made each year against the amount of money that has been invested into a property.

The elements to ROI are as follows:

– £1,500 rental income
– £500 less mortgage interest costs
– £150 less maintenance costs
– £100 less property management fees
– £400 less utilities and rates (if you have a HMO)

Assuming that there are no voids because everyone has signed a one year contract, we know that the monthly profit is likely to be £350 and this equates to an annual profit of £4,200.

The ROI is therefore 14% (£4,200 divided by the amount invested and in this example we will say £30,000 times by 100).

As you can see the ROI can be significantly affected by any changes in the profit made or the amount invested.

It is more surprising that property investors work on due diligence and arrive at a ROI of, let us say 14%, after they have purchased the property and put their receipts in a big black bin liners (not you of course), and are unable to determine if their estimates were accurate.

I work with property investors and build bookkeeping spreadsheets so that people enter their receipts and understand property by property the financial performance of their business. This gives a clear and honest picture of what is really happening with the financial details.

It is important that you get to grips with the numbers of your business so that you can make changes to your property portfolio if it is not performing.

If you would like any additional information on property finance and taxation matters then please email simon@optimiseaccountants.co.uk

Book a call to see how we can help you.