Understanding Real Estate ROI
Key Components of the ROI Calculation
- Capital Appreciation: The estimated yearly increase in your property's market value. Over a 10-20 year horizon, this compound growth creates massive equity.
- Rental Yield: The income generated from renting the property out. This acts as a powerful offset against your EMI payments.
- Loan Amortization: Every time you pay an EMI, a portion goes toward interest, but another portion goes toward the principal. Over time, your loan balance decreases, meaning you own more of the house free-and-clear.
By subtracting your total outflows (Down payment, EMIs, and Maintenance) and the remaining loan balance from your total inflows (Future Property Value and Total Rental Income), you arrive at your true Net Profit and Annualized ROI.
