Property investment ROI measures annual profit against capital invested. Australian property historically returns 3-4% annually plus capital growth. Understanding ROI helps evaluate property purchases.
ROI Formula
ROI = (Net Annual Profit / Total Capital Invested) × 100
Net annual profit = Rent collected - All expenses (mortgage, rates, insurance, maintenance, depreciation).
Calculating Net Profit
Annual rent typically ranges $15,000-$30,000 depending on location. Expenses include loan interest (varies 5-7%), council rates ($800-$2,000/year), insurance ($500-$1,500), and maintenance ($1,000+ annually).
Capital Invested
Initial deposit typically 20% of property price ($80,000-$150,000 on $400,000-$750,000 property). Legal fees, stamp duty, and inspection costs add $10,000-$20,000.
Comparing Markets
Sydney properties: Higher purchase price, 3% rental yield. Melbourne: Similar yield but lower entry price. Brisbane/Adelaide: 4-5% rental yield with more affordable entry.
Long-term Perspective
Five-year ROI includes capital growth. Properties appreciating 5% annually plus rental returns create cumulative returns 6-8% total.
FAQ
Q: What’s considered good ROI? A: 5-7% total annual return (rental + growth) is competitive.
Q: How do tax deductions affect ROI? A: Mortgage interest deductions improve cashflow and tax position.
Q: When does a property break even? A: Typically 7-10 years with capital growth.