When modeling ROI, which components are used to estimate the return on sale?

When modeling ROI, which components are used to estimate the return on sale?

• A. Include cash flows during hold period plus net sale proceeds minus initial investment, divided by initial investment.
• B. Only include cash flows during hold period.
• C. Only net sale proceeds divided by initial investment.
• D. Initial investment divided by cash flows during hold period.

Answer: (A)

When estimating ROI for a property you hold and eventually sell, you must account for all money coming in compared to the money you put in. This means adding the cash flows you receive during the holding period (rents, operating income) to the net sale proceeds at the end, then subtracting the initial investment to get the total net gain. Dividing that net gain by the initial investment gives the ROI. In formula form: ROI = (hold-period cash flows + net sale proceeds − initial investment) / initial investment. This approach captures both ongoing income and the sale outcome relative to what was invested. For example, if you received 50k during holding, net sale proceeds are 200k, and the initial investment is 150k, ROI = (50k + 200k − 150k) / 150k = 100k / 150k ≈ 66.7%. Focusing only on hold-period cash flows ignores the sale, while focusing only on sale proceeds ignores ongoing income, and flipping the ratio wouldn’t reflect the true return on the initial outlay.

When estimating ROI for a property you hold and eventually sell, you must account for all money coming in compared to the money you put in. This means adding the cash flows you receive during the holding period (rents, operating income) to the net sale proceeds at the end, then subtracting the initial investment to get the total net gain. Dividing that net gain by the initial investment gives the ROI. In formula form: ROI = (hold-period cash flows + net sale proceeds − initial investment) / initial investment. This approach captures both ongoing income and the sale outcome relative to what was invested. For example, if you received 50k during holding, net sale proceeds are 200k, and the initial investment is 150k, ROI = (50k + 200k − 150k) / 150k = 100k / 150k ≈ 66.7%. Focusing only on hold-period cash flows ignores the sale, while focusing only on sale proceeds ignores ongoing income, and flipping the ratio wouldn’t reflect the true return on the initial outlay.