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What Is the Average Return on Investment in Real Estate?

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If you’re focusing on making money in real estate, studying the ROI of real estate properties can be a great way to prepare your expectations.

It’s also important to keep in mind that COVID-19 has affected what you can earn on certain commercial properties, especially within the hospitality industry.

Read on to learn the average return on investment in real estate and how you can make real estate investing a successful venture!

Average Return on Investment in Real Estate

It’s important to remember that the ROI in real estate differs depending on the type of real estate you’re investing in.

The ROI is usually calculated by subtracting your investment gain by the investment cost, then dividing that number by the investment cost.

You may also need to consider maintenance and repair costs, taxes, HOA fees, and more. However, here are some of the typical rates:

Single-Family Homes

You’ll find that overall, the returns for holding single-family homes are relatively low. This is because average home values only go up about one percent each year.

With the pandemic inflating demand and decreasing supply, homes are also selling far more above their appraised value.

House Flipping

House flipping can be a tricky but rewarding aspect of stepping into the real estate industry. Although house flipping has an average ROI of 40.5 percent with a gross profit of $66,300, this number is at its lowest since 2011.

Although the declining ROI is worrisome, it’s still too early to tell whether this is a long-term trend or just a result of the pandemic conditions.

Of course, knowing how to flip a home in the most efficient and effective way can maximize your ROI. This includes studying the neighborhood and location of the home, ensuring that you have an ample amount of capital, and paying attention to what type of homes sell the quickest in your area.

You’ll also want to make sure that you have the best team of lawyers, contractors, interior designers, and more possible. This means taking time to vet them by reviewing their qualifications, interviewing past clients, and ensuring they have the proper credentials, licenses, and insurance.


REIT stands for real estate investment trust. These are companies that own and usually operate income-producing properties such as apartments, malls, storage facilities, and more.

There are three broad categories of REITs, though it’s important to keep in mind that they can be divided into smaller categories:

  • Equity REITs: These companies own the property, maintain it, and also collect rent checks
  • Mortgage REITs: A mortgage REIT doesn’t own the property. Instead, they own the debt securities that are backed by the property.
  • Hybrid REITs: This is a combination of the above REITs. They own the properties as well as the mortgages.

Investing in REITs is a great way to expand your real estate portfolio at a smaller price. You also won’t have to worry about maintenance, collecting rent checks, and everything that goes on with owning a property.

These can be a smart investment because they often give high returns and reliable dividends. Since the real estate industry can be volatile, their liquidity and lower volatility can also give you peace of mind.

Short-Term Rentals

Despite the pandemic, people still want to get away and enjoy time away with their families. According to a survey by Morning Consult, 44 percent of Americans planned to travel in 2020. You can expect that percentage to rise as the pandemic gets more in control.

An investment in a short-term rental is all about location. You’ll experience higher occupancy rates and be able to charge higher rent if it’s near an ocean or a body of water.

Overall, the ROI for low-rise apartments is 11.88 percent while an average residential property is nine percent.

If you don’t have enough capital, you can also consider loans for rental properties.

Single-Family Rentals

Single-family rentals can be a great choice if you don’t live in a location that gets a lot of vacationers. Not only do they have less turnover that you won’t have to worry about, but they often cost less per square foot compared to larger properties.

The average ROI will depend on the state, with the highest being in California. The average throughout the country is $10,637.

One of the difficulties with home rentals is needing to conduct credit checks, collect checks, and provide regular maintenance and help solve issues for your renters.

This can be accomplished by hiring a property management company, but it’s important to keep in mind that this will eat into your profits. However, it can be worth it if you don’t live in the safe area as your single-family rental, or you aren’t experienced with being a landlord.

Maximize Your Return on Investment in Real Estate

If you want to make a living in the real estate industry, it’s all about making sound investments and increasing your ROI. This means making sure that you have a high credit score as well as enough capital in hand in order to ensure that you’re prepared for anything that can go wrong.

You’ll also want to take time to research the type of real estate you want to invest in. If you want to flip a home or purchase a single-family or rental property, your research should also include the location and neighborhood.

Ready to begin earning long-term passive income and a high return on investment in real estate? Start a loan with us today to accrue the capital you need!

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