4.16 Interest Rate Calculator

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Rental Property ROI & Cap Rate Calculator

Acquisition Costs

Monthly Income/Expenses

Investment Summary

Total Investment
$0
Annual Net Income
$0
Capitalization Rate
0%
Cash-on-Cash ROI
0%
function calculateRentalROI() { var purchasePrice = parseFloat(document.getElementById('purchasePrice').value) || 0; var repairCosts = parseFloat(document.getElementById('repairCosts').value) || 0; var closingCosts = parseFloat(document.getElementById('closingCosts').value) || 0; var monthlyRent = parseFloat(document.getElementById('monthlyRent').value) || 0; var monthlyTaxes = parseFloat(document.getElementById('monthlyTaxes').value) || 0; var monthlyInsurance = parseFloat(document.getElementById('monthlyInsurance').value) || 0; var totalInvestment = purchasePrice + repairCosts + closingCosts; var annualGrossIncome = monthlyRent * 12; var annualExpenses = (monthlyTaxes + monthlyInsurance) * 12; var annualNetOperatingIncome = annualGrossIncome – annualExpenses; var capRate = (annualNetOperatingIncome / purchasePrice) * 100; var cashOnCash = (annualNetOperatingIncome / totalInvestment) * 100; document.getElementById('resTotalInvestment').innerText = '$' + totalInvestment.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0}); document.getElementById('resAnnualNOI').innerText = '$' + annualNetOperatingIncome.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0}); document.getElementById('resCapRate').innerText = capRate.toFixed(2) + '%'; document.getElementById('resCOC').innerText = cashOnCash.toFixed(2) + '%'; document.getElementById('resultsArea').style.display = 'block'; }

Understanding Rental Property Returns

Investing in real estate requires a deep understanding of the numbers to ensure a property will generate sufficient cash flow. This calculator helps you determine the viability of a rental property by looking at two primary metrics: Cap Rate and Cash-on-Cash Return.

What is the Capitalization Rate (Cap Rate)?

The Cap Rate is calculated by dividing the Net Operating Income (NOI) by the purchase price. It represents the natural rate of return for a property as if it were purchased in cash. This metric is essential for comparing the intrinsic value of different properties regardless of how they are financed.

What is Cash-on-Cash ROI?

Unlike the Cap Rate, Cash-on-Cash ROI takes into account your total out-of-pocket investment, including renovation costs and closing fees. It is the ratio of annual before-tax cash flow to the total amount of cash invested. For investors who perform "fix and flips" or significant renovations, this is often the more accurate metric for performance.

Example Calculation:
If you buy a duplex for $250,000, spend $15,000 on new flooring/paint, and pay $5,000 in closing costs, your Total Investment is $270,000.

If the property generates $2,200/month in rent ($26,400/year) and has $4,800/year in expenses, your Net Operating Income is $21,600.

– Cap Rate: ($21,600 / $250,000) = 8.64%
– Cash-on-Cash: ($21,600 / $270,000) = 8.00%

Key Factors for Rental Success

  • Location: Influences vacancy rates and appreciation potential.
  • Expense Management: Property taxes and insurance vary wildly by region.
  • Maintenance Reserve: Always set aside 10-15% of gross rent for unexpected repairs.
  • Property Management: If you aren't self-managing, remember to subtract 8-12% of gross rent for management fees.

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