Investing in real estate is a powerful way to build wealth, but simply buying a property and renting it out doesn't guarantee a profit. To succeed, investors must analyze the numbers meticulously. This Rental Property ROI Calculator helps you determine the viability of a potential investment by breaking down cash flow, expenses, and returns.
Understanding Key Metrics
Cash Flow: This is the net income from the property after all expenses (mortgage, taxes, insurance, repairs) are paid. Positive cash flow means the property pays for itself and generates income.
Cash on Cash Return (CoC): A vital metric that measures the annual return on the actual cash invested (down payment + closing costs). A CoC of 8-12% is generally considered good in many markets.
Cap Rate (Capitalization Rate): This measures the natural rate of return on the property assuming it was bought with cash. It helps compare properties regardless of financing method.
Example Scenario
Let's say you purchase a property for $250,000 with a 20% down payment ($50,000). You secure a 30-year loan at 6.5% interest.
Rental Income: You charge $2,200 per month.
Expenses: Your mortgage might be around $1,264, plus taxes ($250/mo), insurance ($100/mo), and a 5% vacancy reserve ($110/mo).
Result: If your total monthly expenses equal $1,900, your monthly cash flow is $300. This results in an annual profit of $3,600, yielding a 7.2% Cash on Cash return on your $50,000 investment.
Why Use a Rental Calculator?
Estimating expenses is the most common pitfall for new investors. Many forget to account for vacancy rates (periods where the property sits empty) or maintenance costs (replacing a water heater or roof). Using a specialized calculator ensures you account for these "hidden" costs before signing the closing papers.
function calculateRentalROI() {
// Get Inputs
var purchasePrice = parseFloat(document.getElementById('purchasePrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value);
var propertyTax = parseFloat(document.getElementById('propertyTax').value);
var insurance = parseFloat(document.getElementById('insurance').value);
var hoaFees = parseFloat(document.getElementById('hoaFees').value);
var maintenance = parseFloat(document.getElementById('maintenance').value);
// Validation: Ensure required fields are numbers
if (isNaN(purchasePrice) || isNaN(downPayment) || isNaN(interestRate) || isNaN(monthlyRent)) {
alert("Please fill in all primary fields (Purchase Price, Down Payment, Interest Rate, Rent) to calculate.");
return;
}
// Set defaults for optional fields if empty
if (isNaN(vacancyRate)) vacancyRate = 0;
if (isNaN(propertyTax)) propertyTax = 0;
if (isNaN(insurance)) insurance = 0;
if (isNaN(hoaFees)) hoaFees = 0;
if (isNaN(maintenance)) maintenance = 0;
// 1. Calculate Mortgage Payment
var loanAmount = purchasePrice – downPayment;
var monthlyInterestRate = (interestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
var monthlyMortgage = 0;
if (loanAmount > 0 && interestRate > 0) {
monthlyMortgage = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else if (loanAmount > 0 && interestRate === 0) {
monthlyMortgage = loanAmount / numberOfPayments;
}
// 2. Calculate Monthly Expenses
var monthlyTax = propertyTax / 12;
var monthlyInsurance = insurance / 12;
var monthlyMaintenance = maintenance / 12;
var monthlyVacancyCost = monthlyRent * (vacancyRate / 100);
var totalMonthlyExpenses = monthlyMortgage + monthlyTax + monthlyInsurance + hoaFees + monthlyMaintenance + monthlyVacancyCost;
// 3. Calculate Cash Flow
var monthlyCashFlow = monthlyRent – totalMonthlyExpenses;
var annualCashFlow = monthlyCashFlow * 12;
// 4. Calculate Returns
var cashInvested = downPayment; // Simplified (usually includes closing costs)
var cashOnCashReturn = 0;
if (cashInvested > 0) {
cashOnCashReturn = (annualCashFlow / cashInvested) * 100;
}
// 5. Calculate Cap Rate
// NOI (Net Operating Income) = Annual Rent – Operating Expenses (excluding mortgage)
var annualOperatingExpenses = (monthlyTax + monthlyInsurance + hoaFees + monthlyMaintenance + monthlyVacancyCost) * 12;
var noi = (monthlyRent * 12) – annualOperatingExpenses;
var capRate = 0;
if (purchasePrice > 0) {
capRate = (noi / purchasePrice) * 100;
}
// Display Results
var resultSection = document.getElementById('resultSection');
resultSection.style.display = 'block';
// Format Currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
// Update DOM
var cashFlowEl = document.getElementById('monthlyCashFlow');
cashFlowEl.innerHTML = formatter.format(monthlyCashFlow);
if (monthlyCashFlow >= 0) {
cashFlowEl.className = "result-value positive-flow";
} else {
cashFlowEl.className = "result-value negative-flow";
}
document.getElementById('totalExpenses').innerHTML = formatter.format(totalMonthlyExpenses);
document.getElementById('cashOnCash').innerHTML = cashOnCashReturn.toFixed(2) + "%";
document.getElementById('capRate').innerHTML = capRate.toFixed(2) + "%";
}