How to Calculate ROI on Real Estate

When it comes to real estate investing, one of the most important numbers you’ll ever calculate is called ROI or Return on Investment.

Whether you’re buying a rental property in Ottawa, looking at your house ROI or simply comparing different opportunities across Ontario, ROI gives you a clear snapshot of how well your money is working for you.

What Is ROI in Real Estate?

In simple terms, ROI tells you how much profit you’re earning compared to the money you’ve invested. For investors, this is a critical measurement as it separates strong income-producing properties from those that may tie up your capital with little return.

The formula is straightforward:

ROI = (Annual Net Income ÷ Total Investment) × 100

This formula expresses ROI as a percentage, making it easy to compare different investments side by side.

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Breaking Down the Formula

Let’s put this into perspective with a practical example:

Purchase Price: $300,000
Closing Costs & Upgrades: $20,000
Total Investment: $320,000
Annual Net Income (after expenses): $18,000

Now, divide $18,000 by $320,000 and multiply by 100.

ROI = 5.6%

This means your rental property is earning a 5.6% return on the money you’ve invested.

Why ROI Matters for Investors in Ottawa

The Ottawa market has long been attractive for investors thanks to its stable economy, government employment base and steady population growth. But not every property is created equal. Two homes with the same purchase price can deliver very different results once you factor in mortgage costs, property taxes, maintenance and potential rent levels.

Calculating ROI gives you a realistic view of cash flow and long-term growth potential before you commit.

Factors That Impact ROI

Purchase Price & Financing – Higher purchase prices and larger mortgages reduce ROI unless rental income keeps pace. In Ottawa, freehold homes in central neighbourhoods may command higher rents but also require larger upfront investment.
Rental Income– Vacancy rates in Ottawa remain low, but rents vary widely by neighbourhood. A two-bedroom in Centretown may rent for more than a similar property in Orleans, impacting ROI significantly.
Operating Expenses – Don’t overlook ongoing costs: property management, repairs, utilities, condo fees (if applicable) and insurance. Ontario’s rent control laws also affect how quickly you can increase rents, which directly influences your ROI.
Property Types
- Single Family Homes: Typically lower maintenance but your income is tied to one tenant.
- Multi-Unit Properties: Higher income potential but also higher upkeep.
- Condo Rentals: Easier to manage but monthly condo fees reduce net income.

ROI on a Rental Property vs. House ROI

It’s worth distinguishing between general house ROI and rental ROI. A house you live in may appreciate in value over time, giving you a return when you sell but it doesn’t generate monthly income. A rental property on the other hand generates ongoing cash flow in addition to appreciation which is why investors often favour rentals when calculating ROI.

How to Use ROI in Your Investment Strategy

Compare Properties: Use ROI to evaluate two or more opportunities. The higher the ROI, the stronger the investment potential.
Set Benchmarks: Many Ottawa investors look for an ROI of at least 5% to 7% on rentals though this can vary depending on risk tolerance and market conditions.
Plan for the Long Term: ROI is just one metric. Equity growth, mortgage pay-down and tax benefits all contribute to the overall return and are important factors in any potential purchase decision

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Limitations of ROI

ROI is a powerful tool, but it’s not the whole picture. It doesn’t account for:

Future appreciation or depreciation
Tax implications
Unexpected expenses (major repairs, vacancies, etc.)

That’s why savvy investors use ROI alongside other tools like cash-on-cash return and cap rate for a more complete financial analysis.

Final Thoughts

Calculating ROI on real estate doesn’t have to be complicated, but it does have to be accurate. Whether you’re considering your first rental property or adding to an existing portfolio in Ottawa, knowing your numbers upfront ensures you’re making informed, profitable decisions.

At the Pilon Real Estate Group, we work with investors every day to identify opportunities that balance strong ROI with long-term stability. If you’re ready to run the numbers on a property you’re considering, reach out, we’d be happy to help!