If you’re considering investing in real estate to make a profit, then you need to know exactly what the return on investment (ROI) is. This can help you determine if it’s worth it to invest in a property by the amount of financial gains you’ll receive from it on a monthly or yearly basis. In short, you need to determine the net profit and then divide it to the total investment cost you’ll spend to know if you need to buy the property. Take note though that the ROI still depends on the property you have as well as its location, features, and more.
The easiest way to calculate your ROI for properties you buy in Cambodia is to use the formula:
ROI = (Current Value of Investment – Original Cost of Investment) / Original Cost of Investment
For example, you bought a $100,000 USD real estate property in 2011 in Phnom Penh that you decided to sell it today (year 2022) as it reaches a value of $110,000 USD. Following the formula above, you have to deduct the current value of the property to the original cost as to when you bought in 2011, and when you do, you’ll get a total of $10,000 USD. Then, you need to divide that to the original cost of investment again to know you have 0.1 or 10% return of investment on this property.
This is how it looks like:
Original Cost of Investment (property value at the time purchased in 2011): $100,000
Current Value of Investment (property value at the time to sell in 2022, after a span of 11 years): $110,000
($150,000 – $100,000) / $100,000 = 0.1 or 10%
Since ROI is usually represented by percentages, it’s easy to determine if investing in a property is worth it. After all, the higher the percentage is, the more reason you need to invest in a property but the lower the percentage is, the more reason you shouldn’t. Given the example above, 10% is too low of an ROI so it’s better not to take the investment risk considering the probability of profiting high in it is low.
Besides using the basic ROI formula above, make sure to factor in your computation the interest charges for your mortgage if you will have it financed, closing costs, renovations, and more. The number you get afterwards will be a more accurate ROI count so you know if you need to invest in that property.