Return on investment is a broad measure of how profitable an investment is, expressed as a percentage of the amount invested. In real estate, it captures the total gain from a property, including cash flow and appreciation, relative to the money put in.
ROI can be calculated in different ways depending on what is included, such as whether it accounts for financing, appreciation, tax benefits, and equity buildup. Because the inputs vary, investors should be clear about what a given ROI figure measures before comparing deals.
ROI is a useful high-level gauge of overall performance, but for rental properties investors often rely on more specific metrics like cap rate and cash-on-cash return, which isolate particular aspects of return.