Calculating ROI Question

[Nilay Shah]

when calculating your ROI on a rental property - do you eliminate the principal portion of your mortgage payment since you are essentially paying yourself?

For example:

Purchase Price: $174,000
Mortgage: $120,000
Out of Pocket Costs: $76,000

Monthly Expense:
Mortgage Payments: $535 (year one average monthly interest = $341)
Taxes: $357
HOA: $210
Total Monthly Expense: $1102 a month

Yearly Income: ($1750rent x 12) = $21,000 - $13,224 = $7776 profit

7776/76,000 = 10% ROI

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OR would you calculate ROI with the $341 interest payment

Monthly Expense:
Mortgage Payments: year one average monthly interest = $341
Taxes: $357
HOA: $210
Total Monthly Expense: $908

Income: ($1750rentx12) = $21,000 - $10896 = $10,104 profit

10,104/76,000 = 13%

thanks