Real Estate ROI: A Practical Guide to Calculating Your Profits Before Buying Any Property

Real estate investment can be one of the most stable and profitable types of investment, but only under one condition: you must calculate real estate ROI correctly before purchasing. Because the real problem is not buying a good property but buying a property that generates real profits after deducting expenses and operational costs.

In this article, we offer you a practical guide that teaches you step-by-step:
How to calculate your profits accurately, how to compare a furnished unit with an unfurnished one, and how to know whether your purchase decision is financially sound or not.

Real ROI vs. “Paper Profit”: What Investors Get Wrong

Many new investors fall into a simple but costly mistake: they calculate the expected rent, divide it by the purchase price, and assume that’s the final return.

But the truth is: real ROI is not measured by revenue alone; it is measured by net return after expenses.

So, the right question is not: How much rent will I collect?
But rather: How much will I actually profit after deducting all costs?

What Is Real Estate ROI (Return on Investment) in Simple Terms?

Real estate ROI (Return on Investment) is the indicator that tells you the percentage of profit you will generate from a property compared to what you invested in it.

In simpler terms:
Will the money you put into this unit bring you a solid real return? Or will it generate a small profit that doesn’t justify the amount of capital invested?

Many people assume ROI is calculated only based on rental income. But in reality, real estate ROI depends on 3 key elements:

1. Total actual investment (what you truly paid)
2. Total expected annual revenue
3. Total annual expenses (this is where most mistakes happen)

That is why real estate ROI is not a fixed number for all properties; it changes depending on rental strategy, area, and operational management.

The Basic Formula for Calculating Real Estate ROI

You can calculate real estate ROI using a clear formula:

ROI (%) = (Net Annual Profit ÷ Total Investment) × 100

To apply this correctly, you first need to calculate:

Net Annual Profit = Annual Revenue – Annual Expenses

This formula is the foundation for calculating real estate ROI accurately.

ROI vs. Rental Income: Don’t Mix Them Up

One of the most common questions among new investors is:
Is annual rental yield the same as ROI?

Answer: No.

Annual rental yield means the total rent you collect in a year (usually before expenses).
Real estate ROI means what you actually earn as a percentage of your total investment after deducting expenses.

That’s why you may find a big difference between a property that looks highly profitable on paper and another property that generates higher true ROI because its expenses are lower or it is managed more efficiently.

A Quick Practical Example of Real Estate ROI Calculation

Let’s assume you bought an investment unit, and the data is as follows:
Total investment (purchase price + furnishing/setup): 1,000,000 SAR
Annual rental revenue: 90,000 SAR
Annual expenses (maintenance + services + operations…): 20,000 SAR

1. Calculate Net Annual Profit:
   Net Annual Profit = Annual Revenue – Annual Expenses
   = 90,000 – 20,000
   = 70,000 SAR
2. Calculate ROI:
   ROI (%) = (Net Annual Profit ÷ Total Investment) × 100
   = (70,000 ÷ 1,000,000) × 100
   = 7%

Result:
Real estate ROI for this unit = 7% annually
Meaning you earn approximately 70,000 SAR per year after expenses.

Furnished Units ROI: Why It’s Often Higher

Real estate ROI in furnished units is usually higher than unfurnished ones, especially in high-demand cities like Riyadh, because furnished rentals unlock more profit opportunities, such as:

• Daily rentals at higher rates
• Flexible pricing based on season and demand
• The ability to increase occupancy through multiple booking platforms

This is where Rikal Stay comes in: we operate your unit as a profitable investment asset by managing the operational elements that make the biggest ROI impact, such as:

• Increasing occupancy through the right booking channels
• Smart pricing that adjusts based on season and demand
• Managing reservations and guest experience professionally
• Organizing cleaning and preparation between stays
• Monitoring operational maintenance to reduce breakdowns and losses

Result: more efficient operations, a better guest experience, and a higher investor ROI.

How Rikal Stay Helps You Turn ROI Into Real Numbers

In many cases, the problem is not the unit itself; it’s the operations. A unit may be in an excellent location and well furnished, yet it still fails to generate the expected real estate ROI because of inefficient management that leads to:

• Lower occupancy
• Incorrect seasonal pricing
• Poor guest experience that impacts ratings
• High operating costs with no clear plan

This is why having a specialized management company with an investment mindset becomes essential.

At Rikal Stay, we provide a management model built on 3 key goals:

1. Increasing revenue by boosting occupancy and optimizing pricing
2. Reducing expenses through organized operations and minimizing damage, waste, and breakdowns
3. Delivering a professional guest stay experience that improves ratings and increases repeat bookings

Rikal Stay Packages for Furnished Property Management

Since investors have different needs, Rikal Stay offers two clear packages that allow you to choose the best model based on your investment goals and the time you can dedicate to managing your unit.

1. Basic Package
   Ideal for investors who want professional management and higher occupancy while maintaining flexible subscription options.

Pricing:
399 SAR/month with annual subscription
499 SAR/month with a monthly subscription
50% discount on the first month

Includes:

• Managing the unit on multiple channels: Airbnb – Booking – Google Accommodation – Rikalstay.com
• Managing check-in and check-out procedures
• 24/7 customer support
• Sending a new password for each guest to improve security
• A dashboard to track your unit’s performance in real time
• Free 30-minute consultation
• Reviewing and optimizing the unit description by the marketing team
• Recommendations to enhance unit setup and guest experience
• A marketing plan including promotions and coupons to increase occupancy and revenue

2. Advanced Package
   Ideal for investors who want a full unit operation with zero daily effort and complete management of every guest experience detail.

Price: starts from 1899 SAR/month

Includes:

• All Basic Package features
• Cleaning service
• Full unit operation from A to Z

Additional services upon request:

• Professional unit photography
• Activating a smart pricing strategy to increase revenue and occupancy
• Full initial unit setup and launch on booking platforms

Operational Notes:

• Coverage is currently only within Riyadh city
• Minimum booking: 5 nights
• 50% discount on the first month

Quick Checklist Before Buying Any Investment Property

Before deciding to buy a property for investment, make sure you can answer the following questions:

1. What is the total real investment?
   (purchase price + furnishing + setup + launch)
2. What is the realistic average nightly price in the target neighborhood?
   Do not rely on the highest price; use a realistic average.
3. What is the expected occupancy rate?
   And does it depend on a specific season, or can it be sustained year-round?
4. What are the annual operating expenses?
   (maintenance + services + cleaning + supplies + operations)
5. Will you manage the unit yourself or through professional management?
   Professional management can increase occupancy, optimize pricing, and reduce operational waste, which directly impacts net profit.
6. What is your net annual profit after deducting all expenses?
   This is the number your real ROI depends on.

Therefore, if you want to evaluate a unit or calculate expected ROI before buying or starting operation, you can contact the Rikal Stay team for a consultation to help you:

• Estimate expected revenue realistically
• Select the right rental model for your unit
• Calculate operating expenses accurately
• Build a clear ROI projection before making the decision

Invest Smart with Rikal Stay

Real estate investment is not just about buying a unit and renting it out; it is a financial decision measured by numbers before anything else.

The more accurate and clear your real estate ROI calculation is, the safer your decision becomes, and the lower your risk of entering an investment that looks profitable but drains the return over time.

If you want to make your decision confidently before buying or operating, contact the Rikal Stay team for a consultation to evaluate your unit and choose the best model to achieve the highest possible return.