What is return on equity (ROE) in real estate investment?

Return on equity (ROE) in real estate investment measures the profitability of an investment relative to the amount of equity invested. It is calculated as the net income produced by an asset after all expenses, including debt service, have been deducted. This metric specifically reflects the returns that an investor receives from their equity in the property, providing insight into how effectively that equity is generating profit.

In the context of real estate, understanding ROE helps investors evaluate their investment's performance. When the calculation accounts for debt service, it offers a more accurate picture of the true returns on the investor’s cash that has been invested in the property, as it highlights the impact of financing decisions on profitability.

The other options present different concepts or calculations that do not directly align with the definition of ROE focused on the equity aspect of real estate investments. For example, considering net income before debt service, gross revenue versus equity, or overall returns without leverage doesn’t provide the comprehensive view of returns specifically tied to the equity investment itself, which is why they are not suitable choices for ROE in real estate.