How to Calculate Rate of Return on Investment Property

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Investment Property ROI Calculator

Acquisition Costs
Include down payment, repairs, & closing fees.
Income & Expenses
Enter 0 if paying cash.

Profitability Analysis

Annual Gross Income:
Annual Operating Expenses:
Net Operating Income (NOI):
Annual Debt Service:
Annual Cash Flow:
Cap Rate:
Cash on Cash ROI:
function calculateROI() { // Retrieve inputs var price = parseFloat(document.getElementById('purchasePrice').value); var cashInvested = parseFloat(document.getElementById('cashInvested').value); var monthlyRent = parseFloat(document.getElementById('monthlyRent').value); var monthlyExpenses = parseFloat(document.getElementById('monthlyOperatingExpenses').value); var monthlyDebt = parseFloat(document.getElementById('monthlyDebtService').value); // Validation if (isNaN(price) || isNaN(cashInvested) || isNaN(monthlyRent) || isNaN(monthlyExpenses)) { alert("Please fill in all required fields (Purchase Price, Cash Invested, Rent, and Expenses)."); return; } // Handle empty debt input as 0 (Cash purchase) if (isNaN(monthlyDebt)) { monthlyDebt = 0; } // Calculations var annualIncome = monthlyRent * 12; var annualOperatingExpenses = monthlyExpenses * 12; // Net Operating Income (NOI) = Income – Operating Expenses (Excluding Debt) var noi = annualIncome – annualOperatingExpenses; // Annual Debt Service var annualDebtService = monthlyDebt * 12; // Cash Flow = NOI – Debt Service var annualCashFlow = noi – annualDebtService; // Cap Rate = (NOI / Purchase Price) * 100 var capRate = 0; if (price > 0) { capRate = (noi / price) * 100; } // Cash on Cash ROI = (Annual Cash Flow / Total Cash Invested) * 100 var roi = 0; if (cashInvested > 0) { roi = (annualCashFlow / cashInvested) * 100; } // Formatting Currency var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', minimumFractionDigits: 0, maximumFractionDigits: 0 }); // Display Results document.getElementById('results').style.display = 'block'; document.getElementById('resAnnualIncome').innerText = formatter.format(annualIncome); document.getElementById('resAnnualExpenses').innerText = formatter.format(annualOperatingExpenses); document.getElementById('resNOI').innerText = formatter.format(noi); document.getElementById('resDebtService').innerText = formatter.format(annualDebtService); document.getElementById('resCashFlow').innerText = formatter.format(annualCashFlow); document.getElementById('resCapRate').innerText = capRate.toFixed(2) + '%'; document.getElementById('resROI').innerText = roi.toFixed(2) + '%'; }

How to Calculate Rate of Return on Investment Property

Investing in real estate is a powerful vehicle for wealth generation, but success depends entirely on the numbers. Unlike purchasing a primary residence where emotion plays a role, an investment property is a business decision. To make sound decisions, you must know how to accurately calculate the Rate of Return (ROI). This guide breaks down the essential metrics used by professional investors: Cash Flow, Cap Rate, and Cash-on-Cash Return.

1. Net Operating Income (NOI)

Before calculating your final return, you must determine the Net Operating Income. This is the profitability of the property before factoring in financing (mortgage) or taxes.

Formula: Annual Rental Income – Annual Operating Expenses = NOI

Operating expenses typically include property taxes, insurance, maintenance reserves, property management fees, and HOA dues. Note that mortgage payments are not included in NOI.

2. Cap Rate (Capitalization Rate)

The Cap Rate measures the property's natural rate of return assuming you bought it with 100% cash. It allows you to compare the profitability of different properties regardless of how they are financed.

Formula: (NOI / Purchase Price) × 100 = Cap Rate %

  • High Cap Rate: Typically indicates higher risk or a lower-demand area, but higher potential cash flow.
  • Low Cap Rate: Often found in stable, high-demand areas where appreciation is the primary goal rather than immediate cash flow.

3. Cash-on-Cash Return (ROI)

For most investors using leverage (mortgages), the Cash-on-Cash Return is the most critical metric. It measures the return on the actual cash you put into the deal (down payment + closing costs + repairs), rather than the total value of the house.

Formula: (Annual Cash Flow / Total Cash Invested) × 100 = Cash on Cash ROI %

Annual Cash Flow is calculated by taking your NOI and subtracting your annual debt service (mortgage payments).

Real-World Calculation Example

Let's say you are analyzing a rental property with the following stats:

  • Purchase Price: $200,000
  • Total Cash Invested: $50,000 (Down payment + Closing costs)
  • Monthly Rent: $2,000
  • Monthly Expenses: $800 (Taxes, Ins, Maint)
  • Monthly Mortgage: $900

Step 1: Calculate NOI
Income ($24,000) – Expenses ($9,600) = $14,400 NOI

Step 2: Calculate Cash Flow
NOI ($14,400) – Annual Mortgage ($10,800) = $3,600 Annual Cash Flow

Step 3: Calculate ROI
($3,600 / $50,000) × 100 = 7.2% Cash-on-Cash Return

Why This Matters

A positive ROI ensures your asset is paying you to own it. A "good" ROI is subjective and depends on your goals, but many investors aim for a Cash-on-Cash return of 8% to 12% for long-term rentals. By using the calculator above, you can quickly stress-test different scenarios—such as lower rent or higher maintenance costs—to ensure the investment remains profitable under various conditions.

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