If you are a Portland homeowner (or about to become one), you’ll be interested in the progression of your Portland home’s value over time. The market may fluctuate, but what *doesn’t* is your goal of seeing your property value go up — in other words, calculating its Return on Investment. In economic terms, evaluating the projected ROI tells you how much profit there would be if the home is sold at a later time.

There are two major methods of calculating real estate ROI. Both take cost and appreciation into account — but they come up with quite different answers!

**The Cost Method**** gives a smaller ROI. **Consider buying a Portland house for $100,000. Ubiquitous Zillow (the Internet giant) pegs the current annual appreciation rate for real estate in the U.S. at 6%. If our market proves true to that projection, the example Portland home value would register $106,000 after the first year. If $2,000 were spent on repairs, that means a $4,000 profit would result, and the ROI for that one year would be $4,000 divided by $102,000: 3.9%. At that ROI, it would take roughly 26 (100 divided by 3.9) years to equal the cost of the home.

Sometimes called the “**Out of Pocket”** method, this calculation yields a higher ROI. Here, ROI is calculated based on the size of the down payment (assuming a mortgage is involved). Take the same example: the Portlandhome valued at $100,000. You won’t actually pay that whole amount — just the down payment (say, $20,000). To evaluate the ROI, the down payment is added to the repair costs ($20,000+$2,000) and that number is subtracted from the appreciated home value ($106,000-$22,000). The “equity” in this case is $84,000, so the ROI in that single year is $84,000/$106,000 = 79.2%. Although this sounds terrific, it isn’t too realistic…after all, the mortgage left is still owed: it may not be “out of pocket” because it hasn’t been actually paid yet, but the remaining liability is real.

If you have a Portland home value questions, I’m here to answer those and any other real estate-related needs. Call me anytime at (503) 389-0686 to discuss home values, ROI, or other property questions!