How to calculate profitability of my current SF rental?

[Paul Kouri]

I have been renting out a single-family (3 bedroom, 1.75 baths, 1200 sf) home for 3.5 years now. I had 1 month of vacancy. 

I originally purchased the property as my primary residence, lived in it for 5 years then bought another home down the street and kept the original as a rental. While living there I gutted the kitchen and bath, installed hardwood and replaced the roof. 

I see two ways to calculate my investment:1) Historical approach - the amount of the original downpayment plus renovation costs and 2) Present status - the value/equity that is tied up, but would reap if I sold it. 

Will you help explain how you would look at this property? I believe by doing so I will learn a few things that I may use when analyzing new deals.

Here are the numbers:

Purchase price $85,000

Downpayment $17,000

Improvements $26,000

Current monthly escrow $665 ($150 is principal)

Current monthly rent     $1,100

Utilities by tenant

Assumed sales price $120,000

Current mortgage        $83,000 (I re-financed at 3.5%, 30-year fixed to pay off my school loan a few years ago)

I've been using the latter version for how much annual profit I make on my investment, as follows:

$120,000-$83,000=$37,000 (in my mind I have $37,000 locked up in the property currently, ignoring sales fees)

Annual net income=12 X ($1,100-$665) = $5,220 

My return on investment = $5,220 / $37,000 = 14.10%

Any thoughts on this?

Also, what is your opinion...is this a decent, long-term (not looking to get filthy rich) property or should I look for better than this?

Sincerely,

Paul