Which of the following best defines 'return on investment' in real estate?

The concept of 'return on investment' (ROI) in real estate refers to the profit generated from an investment relative to its cost. This measure is crucial for assessing the effectiveness of an investment and helps investors determine how well their financial resources are being utilized.

In real estate, ROI can be calculated by taking the net profit from the property—after accounting for costs like purchase price, repairs, and ongoing maintenance—and dividing it by the total investment amount. This calculation provides a clear percentage that investors can use to evaluate the performance of their property compared to other investment opportunities.

Understanding ROI is fundamental for making informed investment decisions, as it reflects not just the nominal profit but also how efficiently invested capital is being turned into profit.