Calculating ROI

Properly calculating ROI – (Return on Investment).

People often asked, how are the proceeds calculated and distributed to investors. Let’s review hypothetical scenario of an investment below. 

Example: Let’s say you have one investment deal with two investors. Do you calculate the ROI on an investment together or the ROI for individual investors?
The profits should be distributed based on individual contribution and split between investors.

Example:
Initial Investment contribution:
Investor A: $150,000 – (60%).
Investor B: $100,000 – (40%).

Total amount of invested capital: $250,000.
Total expenses: $200,000 – (includes investment purchase price, operating and closing expenses etc).

Profit from investment: $50,000 – (20% each investor)

To calculate ROI for the project you choose the following option:

Option # 1  -  (calculating ROI on investment together):
                           ROI = ($50,000 / $250,000) = 20%.

To calculate ROI for each investor you choose the following option: 

Option # 2   -  (calculating ROI separately for each investor):
ROI Investor A = ($30,000 / $150,000) = $30.000 or 20%.
ROI Investor B = ($20,000 / $100,000) = $20,000 or 20%.