House Flipping ROI Question

[Ben C.]

Hello,

I will be financing my purchase and renovation costs (with a down payment of course) and was wondering in calculating my ROI….

Do you calculate the ROI as the total CASH out of your pocket (Down payment, closings costs, mortgage payments) so profit (money left over after the mortgage is paid off and closed) divided by cash out of pocket

or divided or as the TOTAL costs (including the balance on the mortgage) so the profit (money left over after the mortgage is paid off and closed) divided by the total cost including the mortgage portion that was only paid off at closing. 

Thoughts?