Which financial metric is primarily used to determine the profitability of an investment in real estate?

Return on Investment (ROI) is the primary financial metric used to determine the profitability of an investment in real estate because it provides a clear and quantifiable means to evaluate the efficiency of the investment. ROI measures the gain or loss generated relative to the amount invested. In the context of real estate, this allows investors to assess how well an investment is performing compared to the initial costs incurred and other potential investments.

By calculating ROI, investors can understand the income generated (or the loss incurred) through their investment in relation to the original amount of capital invested. This metric is particularly useful because it can incorporate various income streams from real estate, such as rent, property appreciation, and any tax benefits, offering a comprehensive view of overall profitability.

The other options have their significance in financial analysis, but they either do not directly measure profitability in the same manner as ROI or are more focused on other aspects of financial health. For instance, while net income is important for evaluating operational performance, it does not provide insights into the return on the investment relative to the cost. Similarly, equity represents ownership value but does not inherently measure profitability. Cost of capital is more about understanding the expense of funding and does not reflect the profitability of the investment itself. Thus, ROI stands out