A method of estimating the Return on Housing Investment (ROHI)

The aim of the study was to develop a method for estimating the profitability of housing investments. Market practice shows that the profitability of this type of investment is influenced by specific determinants that are absent in the classical approach to profitability analysis. The most commonly used method is the Return on Equity (ROE) ratio, which is dedicated to enterprises. However, housing investments are becoming increasingly popular among individuals, while the classical ROE method proved suboptimal for such ventures (i.e. those involving the purchase of residential property and its subsequent rental to third parties). In this context, we made an attempt to develop a method that would make the estimation of the profitability level of this type of investment possible. Through the decomposition of the ROE ratio, a model for the Return on Housing Investment (ROHI) was created. This model was verified using real market data. Ultimately, we found that the ROHI method allows the estimation of the profitability level while taking into consideration the most important determinants characteristic of this type of investment.