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Calculating return on real estate investments at its most fundamental level involves subtracting all the costs paid into a property from both revenue earned during the term of ownership in addition to selling price. Subtracting the buying price from the selling price is simply not an accurate way to determine real estate return because there are so many underlying benefits and costs associated with property ownership that occur on an annual basis. In other words, return on real estate is complicated by the myriad of revenue and cost sources incurred over the term of ownership. Furthermore, in the case of real estate investment groups, and property managers, calculating return on investment is more of an annual than end game operation making profitability, and debt calculations in the form of percentages and ratios rather than simple positive or negative numerical amounts quite relevant in the assessment of return on investment.

To simplify the return on investment a good approach can involve staying organized throughout the whole investment process from start to finish while simultaneously utilizing the numerous techniques and tools involved in assessing return on investment. This means keeping track of and recording every dollar and cent put into the property and every dollar and cent returned in the form of capital gains, and tax benefits. The following sections break down the property investment process into the fundamental units of revenue and cost in section I and tools and techniques that can assist in the calculation and assessment of return involving the revenue and costs from section I in section II.

SECTION I: SOURCES OF PROPERTY REVENUE AND EXPENSE:

The sources of property revenue tend to less than the numerous costs and expenses that a property can incur. For this reason it is quite vital to maximize and optimize the potential revenue of a real estate investment in order to make it worthwhile. Two lists comprised of both the source of property revenue and expense are listed as follows:

Source of Property Revenue:

*Capital gains (after deduction of overhead if applicable): "Profit" on the sale of the property as calculated in terms of purchase price.
*Rental income: Income earned through lease, rental or use of space by a third party.
*Tax deductions: Tax savings such as mortgage interest,
*Tax Credits: Additional tax savings such as renovation credits

Sources of Property Expense:

*Original settlement costs of real estate: All costs associated with purchase

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