Buying a home is a big investment. That’s why when you purchase your home you want to make sure that when you move out and sell it, you will get something back from it. That’s where return on investment comes in.

What is ROI?

Return on investment (ROI) is used to determine the efficiency of an investment compared to other investments. By doing the calculations, return on investment will help you decide whether or not investing in a particular piece of real estate will be profitable to you should you decide to sell later.

Calculating ROI

Calculating your return on investment will help you compare investments to determine what is best for you. Return on investment is measured as a percentage when calculated. To calculate your return on investment, follow this formula: gain of investment minus the cost of investment divided by the cost of investment.

Of course, it’ll be a little more complicated than that, as you will have to determine the investment gain, or how much money you’ll receive before expenses. Then you have to figure in taxes and insurance. Just remember that the calculated return on investment for real estate can be exaggerated, so don’t be surprised if your return is lower than you had calculated.

Paying in Cash & ROI

If you paid for your home in cash, you will have invested all of your money in your home, thus potentially reducing your return on investment, because you’ll lack financial diversity. As such, it’s best you have a diverse portfolio so all of your money isn’t in one place. Also, real estate isn’t a liquid asset, so if you need to sell during an emergency, you won’t get as much money back.

Make the Right Renovations

If you want to increase the value of your home so you can get a decent return on investment, you’ll need to make the right renovations. No matter how beautiful your home is buyers won’t want to live there if there are maintenance problems. That’s why if you’re looking to get a decent return on investment when you sell your home, it’s best to focus on home improvements like fixing up the basement and updating electrical systems.

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.