Investing in a House/Townhouse: ROI and Maintenance Cost Model

Investing in a house or townhouse: the financial checklist 🏠

Buying a house or townhouse can be both a lifestyle choice and an investment. To decide whether a property is a good purchase, you need clear calculations: how to measure returns, which ongoing costs to expect, and how to reduce surprises.

Main metrics to use 📈

• ROI (Return on Investment): measures the annual return relative to your total invested capital. ROI = (annual net income / total investment) × 100%.
• Cap rate: shows the property yield relative to its purchase price. Cap rate = (annual operating income / purchase price) × 100%.
• Cash-on-cash return: useful when buying with a mortgage. Cash-on-cash = (annual pre-tax cash flow / actual cash invested) × 100%.

These metrics are meaningful only when you accurately include all income and expenses.

What counts as "annual net income" ✅

Annual net income = annual rental income (or imputed rent if you live there) − annual operating expenses.

Typical operating expenses:

• Property management fees.
• Local taxes and municipal charges.
• Home insurance.
• Utilities (if owner pays).
• Routine maintenance and minor repairs.
• Reserve for major repairs (roof, systems, façade).
• Vacancy allowance (time without tenants).

A practical tip: set aside a reserve equal to a small percentage of property value or a monthly amount to cover repairs and vacancy periods.

Upfront costs to include in ROI calculations 💰

• Purchase price of the property.
• Transaction costs (legal fees, registration, agent fees).
• Renovation and preparation for letting.
• Furniture and appliances (for short-term rentals).
• Initial taxes and mortgage setup fees.

If you spend on improvements to increase rent, track these separately—this makes it easier to calculate the return on those specific investments.

A no-nonsense approach to running numbers 🔍

1. Research comparable rents in the neighbourhood.
2. Estimate gross annual income conservatively.
3. Subtract all operating expenses and vacancy allowance to get net income.
4. Divide net income by total investment to get ROI.
5. If using financing, calculate cash-on-cash to assess real cash flow.

Be conservative: many listing figures don’t include management costs, taxes or occasional large repairs. Plan for the unexpected.

Regular costs and how to manage them 🧰

• Maintenance: schedule preventive maintenance and keep a repair fund.
• Taxes: check local regulations and timelines.
• Insurance: include dwelling and liability coverage.
• Utilities: clarify who pays for what in tenancy agreements.
• Management: hiring a local property manager reduces day-to-day headaches but eats into income.
• Marketing and tenant placement: budget for turnover periods.

Tip: keep a dedicated maintenance account and contribute monthly as a percentage of expected rental revenue.

Common risks and mitigation strategies ⚠️

• Vacancy: reduce by pricing properly and improving the property’s appeal.
• Unexpected repairs: perform regular inspections and preventive maintenance.
• Legal issues: always verify title and work with legal professionals.
• Market downturns: diversify strategy (short-term vs long-term) and don’t over-leverage.

When a house is a better investment than an apartment—and when it’s not 🏘️

• Houses/townhouses can command higher rents and attract families, but they usually require more management and maintenance.
• Apartments often provide steadier returns with lower management overhead.

Your strategy determines the choice: prioritize passive income and lower hassle—consider apartments; prioritize value-add and higher upside—consider houses with renovation potential.

Practical pre-purchase checklist ✅

• Gather real comparables for rent and sale.
• Conservative estimate of operating expenses.
• Calculate ROI, cap rate and cash-on-cash return.
• Estimate renovation needs and set reserves.
• Consult a local agent and lawyer.

If you'd like help modelling a specific property or seeing suitable options in Georgia, we can run numbers and show realistic scenarios. Start your search or view homes here: https://buyhome.ge/en/search

Contact BuyHome for a friendly, no-pressure consultation — we’ll help you choose the right property and run the calculations.