# Is appreciation added to the “cost of investment” when calculating ROI?

If I buy a rental property with \$100,000 in equity and every year it appreciates \$5,000, has a net income of \$5,000 and has principal paydown of \$5,000, how would I calculate my ROI at the end of year 1?

The appreciation and principal paydown increase the amount of money I have invested in the asset. So should the ROI formula therefore be: \$15,000/\$110,000? Because the new amount of equity is \$110,000? Or should that only be for the net income (\$5,000/\$110,000) & (\$10,000/\$100,000) and then combine the two results?

I'm confused about what should be considered the new amount invested in the asset at the end of each year so that I can accurately calculate ROI. Thank you very much for any help.

• ROI means “return on investment”. How much did you invest? If you look at the bottom line after year one, how much equity do you have? – JTP - Apologise to Monica Mar 1 at 1:52
• I would have \$110,000 in equity. – user78003 Mar 1 at 2:00
• Then what is “principal paydown”? I thought you were referring to a mortgage there. And I was asking what the down payment was. – JTP - Apologise to Monica Mar 1 at 2:02
• The down payment is \$100,000. At the end of year 1 the equity is \$110,000 (down payment + appreciation + principal paydown). – user78003 Mar 1 at 2:11