Return on equity (ROE) and return on investment (ROI) are two important financial metrics that are used to measure the profitability of a rental property, a business, or another type of investment. Both metrics are expressed as a percentage, and they both measure the amount of profit that is generated from a given amount of investment.
However, there are some key differences between ROE and ROI. I think most investors think of ROI when determining how good their investment is, but ROE can give indications of how good the investment is based not just on the initial investment but the current equity. Some properties may have a great ROI but a poor ROE. These numbers can help you decide if it is an investment worth keeping or selling.
This post originally appeared at InvestFourMore.