OfflineI had to clarify this for myself: Figured it may be useful to other newer investors.
I took a small portion straight from the article which states the basic points: ROI is your return on investment factoring in your financing. Its your annual cash flow after all expenses divided by your initial investment (out of pocket expense). ROI depicts the true percentage that you will make on your money in the first year. Capitalization rate (cap rate) is your ROI if you paid cash for the property. It doesn’t include financing. See link below.
http://www.biggerpockets.com/renewsblog/2007/05/25/whats-the-difference-...
www.tw4homes.com website
https://tvallc.isrefer.com/go/RehabLite/reigirl/ FREE SOFTWARE FOR WHOLESALERS, REHABBERS AND AGENTS! Present professional looking deals to buyers and lenders as well as run your numbers and get the ROI.
ROI measures the return on YOUR out-of-pocket investment.
The Capitalization Rate is used to turn net operating income into property value. It reflects not only the typical rate of investor return but also the return that lenders expect to receive from financing the property.
Both rates are absolutely necessary in measuring real estate investment profitability. @Femailceo, thanks for helping the readers understand it better.
I realized that there must be some difference recently and so had to look it up and see for myself.
www.tw4homes.com website
https://tvallc.isrefer.com/go/RehabLite/reigirl/ FREE SOFTWARE FOR WHOLESALERS, REHABBERS AND AGENTS! Present professional looking deals to buyers and lenders as well as run your numbers and get the ROI.