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Return On Investment

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Return on Investment (ROI) is a financial term for the comparison of how much you get out of something in comparison to how much you had to put into it. The formula for ROI is the gain or loss divided by the amount of investment. It lets you compare whether you would have made more money (or lost less) by investing in something else.

For instance, if you buy something at $75 and spend $25 to improve or maintain it, and then you invested $100. Then if you sell it for $150 you gained $50. Divide the gain by the investment ($50/$100) to get the result (50%).

People often spend a lot improving their houses and expect to gain it all back when they sell. That's unlikely. Home improvements may make it easier to sell you house, but for most improvements, you will only get back a portion of what you spent. For example, if you spend $10,000 on a project, it may only increase the value you can sell your house to $8,000. That's a negative ROI of -20%.

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ReferencesEdit

  • (Rate of Return or ROR is another term for ROI.)

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