How to Calculate ROI and ROE for Rental Real Estate: Understanding When to Sell and When to Hold

How to Calculate ROI and ROE for Rental Real Estate: Understanding When to Sell and When to Hold

Real estate investment is often praised for its ability to generate passive income and long-term wealth. However, savvy investors know that the key to maximizing returns lies not just in acquisition, but in smart portfolio management—knowing when to hold and when to sell. Two essential metrics to help guide these decisions are Return on Investment (ROI) and Return on Equity (ROE).

Understanding ROI in Rental Real Estate

Return on Investment (ROI) measures the profitability of your real estate investment in relation to the initial capital you put in.

ROI = (Net Annual Income / Total Investment Cost) x 100

• Net Annual Income: Gross rental income minus operating expenses.
• Total Investment Cost: Purchase price + closing costs + renovation expenses.

Example:
Net income = $12,000; Investment = $150,000
ROI = (12,000 / 150,000) x 100 = 8%

Understanding ROE in Rental Real Estate

Return on Equity (ROE) tells you how well your property is performing in relation to your current equity in it.

ROE = (Net Annual Income / Current Equity) x 100

Example:
Equity = $200,000 (property worth $300,000, mortgage = $100,000)
ROE = (12,000 / 200,000) x 100 = 6%

When to Sell: Capitalizing on High Appreciation

In a strong seller’s market, your property’s equity might be substantial, but if ROE has dropped below your target (e.g., 7%), it could be a sign to sell and redeploy capital. Especially if rent hasn’t kept pace with value, your capital might work harder elsewhere.

When to Hold: Leveraging Prime Rental Locations

If your property commands premium rents in a high-demand area, holding may make more sense. Strong income, minimal vacancies, and value appreciation can sustain a high ROE. Strategic improvements or rent adjustments can enhance returns even further.

The SLS Real Estate Investor Fund: Partner With Professionals

Whether you’re considering selling a property or looking for a more passive way to invest, the SLS Real Estate Investor Fund is designed for experienced investors seeking high-yield opportunities. We professionally manage assets to optimize both ROI and ROE.

Let your equity work harder. Connect with the SLS Real Estate Investor Fund today to elevate your investment strategy.