Rental Property ROI Calculator
Calculate your annual cash flow and Cash-on-Cash return for real estate investments.
Understanding Rental Property ROI
Investing in real estate is one of the most proven ways to build long-term wealth. However, before purchasing a property, it is crucial to understand the Return on Investment (ROI). Unlike traditional stock market returns, rental property ROI accounts for monthly cash flow, tax benefits, and equity buildup.
What is Cash on Cash Return?
The Cash on Cash (CoC) return is a metric often used by real estate investors to calculate the annual return the investor made on the property in relation to the amount of mortgage paid during the same year. It is considered easier to understand than traditional ROI because it focuses specifically on the cash income earned on the cash invested.
The Formula for Rental ROI
To calculate your rental ROI using this tool, we use the following formulas:
- Annual Net Cash Flow = (Monthly Rent – Monthly Expenses – Mortgage Payment) × 12
- Total Initial Investment = Down Payment + Closing Costs + Any immediate repairs
- Cash on Cash Return = (Annual Net Cash Flow / Total Initial Investment) × 100
Example Calculation
Suppose you purchase a property for $250,000. You put down $50,000 (20%) and pay $5,000 in closing costs. Your total initial investment is $55,000.
If the monthly rent is $2,000 and your combined expenses (mortgage, taxes, insurance) are $1,600, your monthly cash flow is $400. Over a year, that is $4,800. Your Cash on Cash return would be 8.72% ($4,800 / $55,000).
Factors That Impact Your Returns
While this calculator provides a snapshot, remember that other factors influence long-term profitability:
- Vacancy Rates: Always budget for at least 5-8% vacancy per year.
- Property Management: If you aren't managing the property yourself, expect to pay 8-10% of gross rent.
- Appreciation: This calculator focuses on cash flow, but property value increases over time add significantly to your net worth.
- Capital Expenditures (CapEx): Major repairs like a new roof or HVAC system should be saved for monthly.