Updated
GL-R-07
01 / In 30 seconds
The short answer
- What it is
- A measure of the return on funds invested
- How it is calculated
- Net profit from an investment divided by the amount invested
- What is often hidden
- Costs: taxes, maintenance, management, void periods, exit fees
- A feature of programmes
- Part of the investment is non-refundable, and this changes the whole arithmetic
- The right approach
- Calculate the full cost of the programme separately from the investment part
02 / In plain words
What ROI means
ROI (return on investment) is a measure of the return on funds invested: the net profit from an investment divided by its amount. It is a simple and convenient indicator which, precisely because of its simplicity, is most often used to embellish the picture.
The key question is always the same — what is included in the calculation. A realistic ROI on real estate takes everything into account: tax on rental income, the annual property tax, service charges, the management company’s fee, repairs, void months and, on exit, capital gains tax and agents’ fees. The figure in a seller’s presentation usually takes into account only the rental rate and the purchase price.
Investment migration has a feature of its own. Some costs are by their nature non-refundable: a contribution to a state fund, due diligence fees, duties. Treating them as part of the investment and expecting a return is wrong — they are the cost of obtaining status. The right approach is to separate them: here is the cost of the programme, and here is the investment part, on which a return can genuinely be calculated.
A case from practice
A client was shown an attractive yield on a property. After including taxes, maintenance, management, void periods and exit costs, the picture became considerably more modest — but realistic, and the decision was then made on that basis.
When it is calculated
- Assessing a real estate investment
- Comparing properties with each other
- Choosing the form of investment for a programme
- Assessing a business project
- Planning an exit from an investment
- Checking the seller’s promises
03 / What it covers
What to include in the calculation
Income
- Rental income
- Real occupancy
- Growth in value on exit
Costs of ownership
- Taxes on income and property
- Maintenance and service charge
- Repairs and management
Entry and exit
- Transaction costs
- Capital gains tax
- Intermediaries’ fees
Programme
- Non-refundable contributions
- Due diligence fees
- Cost of maintaining status
04 / How it works
How to calculate realistically
Separate the programme from the investment
Gather all cost items
Allow for void periods and risks
Calculate the exit scenario
Compare the options
05 / Key facts
What you need to know
01
The ROI in a presentation is usually gross, not net
02
Costs of ownership eat up a noticeable part of the income
03
Taxes on exit change the final picture
04
Non-refundable programme fees are not an investment
05
The property’s liquidity matters more than an attractive figure
Common mistakes
- Calculating from the seller’s figures without checking
- Not allowing for void months
- Forgetting taxes on sale
- Including non-refundable fees in the investment calculation
- Ignoring liquidity and exit timing
06 / Expert advice
How to prepare in advance
The calculation is built on the full cycle: entry, ownership, exit — with all taxes and costs at each stage. The cost of obtaining status is calculated separately from the investment part. And the realism of the input data is checked: the rental rate for the particular area, not the national average.
What we do for you. We always separate two things: how much it costs to obtain status and how much the investment part can earn. Mixing them is the most common way of getting an attractive but meaningless figure.
Robert HaasHead of Company Formation
07 / Questions
Frequently asked questions
The net profit from an investment is divided by the amount invested. The key question is what exactly is included in the profit calculation.
They are usually gross: they take into account rental income and the purchase price, but not taxes, maintenance, management, void periods and exit costs.
No. The non-refundable contribution and fees are the cost of obtaining status. They are calculated separately from the investment part.
Void months, tax on rental income, service charges and capital gains tax on sale.
Very much. A high calculated ROI is useless if the property cannot be sold within a reasonable time at the calculated price.
Real rates for the particular area and confirmed costs, not averages from presentations.
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