ROI and how to calculate

[Ryan Stumbo]

I'm reading the BRRRR book by David Greene.. and it's really confusing me.

The ROI calculations are throwing me off. In certain instances, ROI is calculated by taking the amount of annual profit on rent you have (let's say $400 a month x 12 = $4800) divided by the amount you purchased the property for (we'll say 75k) + rehab (we'll say 25k) so 100k total invested.

So $4800/100,000 = 4.8% ROI.

My first confusion, let's say I use all $100,000 from a HELOC, so none of my own money invested. In the book, he only takes the actual cash amount of your own you put into the property and doesn't count the loaned amount. This doesn't make sense to me. If the $100,000 isn't mine, it's basically calculated as 100% return.

Secondly, in another instance he calculates the ROI in relation to flipping a house. He says you initially think you're going to make 30k on a flip but you actually can make 60k. He says at this point look closer at ROI with 300 per month rent profit. $300x12=$3600.

$3600 he then divided by 30,000 for 12% ROI, but then does the $3600 by 60,000 for 6% ROI. Again, why is this the way it's calculated? Common sense would tell me the ARV of a home going up MORE after I get a good deal and cheap rehab is a good thing. His equation makes it seem like I'm losing ROI, but isn't ROI just telling me the amount I'm gaining yearly compared to the amount I have invested in the rental, not the value of it? So let's say I buy a rental for 20k, but it shoots up to 100k value. Rent profits are 4000 a year. Using his equation, this value shooting up is bad for my ROI. Either I'm misreading him or truly confused or something. Can someone explain?