Return on investment (ROI) and cash flow are factors to know when purchasing an investment property. For example, let’s assume you put $100,000 down on a property, rent it for $3,000 per month, and your expenses, including mortgage, are $2,400 per month. The cash flow is $600 per month income, which totals $7,200 per year. In order to determine the annual ROI, the annual income is divided by your initial investment, in this case $7,200/$100,000 = 7.2% ROI. Note this calculation does not consider the payment of principal on the loan (which would result in a higher ROI) nor potential capital gain on the property. As property values can go up and down over time, it is important that the property cash flows, regardless of the fluctuations in property value.

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