According to investopedia, Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment's cost. Certain markets have certain “norms” and a very common one is the “1%” rule where basically you want to cashflow (the money you take home monthly after expenses) 1% of the purchase price. This is for residential properties. The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a commercial property. The formula for cap rate is equal to Net Operating Income (NOI) divided by the current market value of the asset. In a few cities such as Memphis, Cleveland, etc.. it’s not uncommon to see deals where you can cashflow 2% of the purchase price. These are anomalies but the inventory in these areas is enough for a lot of people to make some money.