ROI, or Return on Investment, is also known as cash-on-cash return. It measures annual net cash flow relative to the initial cash invested, typically the down payment. ROI is calculated by dividing annual net cash flow by total cash invested. For example, if $898,750 is invested and year four generates $198,327 in net cash flow, the ROI is 22.07%. ROI is crucial for smaller investors and for raising capital because it shows year-by-year how well the investment performs. If ROI projections are low—say 2% to 6%—the deal may not be worth pursuing compared to alternatives like index funds. For many value-add self-storage deals, ROI is one of the most practical metrics to focus on.
