Rental Property ROI Calculator
Purchase Details
Loan & Income
Performance Metrics
How to Analyze a Rental Property Investment
Investing in real estate is one of the most reliable ways to build wealth, but not every property is a good deal. To ensure profitability, investors rely on key metrics like Cash on Cash Return, Cap Rate, and Net Operating Income (NOI). This Rental Property ROI Calculator helps you crunch the numbers instantly to determine if a potential investment meets your financial goals.
Understanding Key Metrics
- Cash on Cash Return (CoC): This is the most critical metric for many investors. It measures the annual return on the actual cash you invested (down payment + closing costs), rather than the total price of the property. A CoC of 8-12% is often considered a strong target for rental properties.
- Net Operating Income (NOI): This is your total income minus operating expenses, excluding mortgage payments. It represents the raw profitability of the asset itself.
- Cap Rate (Capitalization Rate): Calculated by dividing NOI by the purchase price. It helps compare the profitability of different properties regardless of how they are financed.
Real-World Example
Let's look at a realistic scenario. Suppose you purchase a single-family home for $250,000. You put $50,000 down (20%) and pay $5,000 in closing costs, making your total cash investment $55,000.
If you can rent the property for $2,200/month and your operating expenses (taxes, insurance, maintenance, vacancy) average $800/month, your NOI is $1,400/month or $16,800/year.
Assuming a 6.5% interest rate on a 30-year mortgage, your loan payment would be approximately $1,264. This leaves you with a monthly cash flow of $136 ($1,632/year). In this scenario, your Cash on Cash Return would be approximately 3%, suggesting you might need to negotiate a lower price or find ways to increase rent to make the deal attractive.
Why Cash Flow Matters
While appreciation (the increase in property value over time) is a nice bonus, successful real estate investors focus primarily on positive cash flow. A property that pays for itself and generates surplus income every month provides financial security and funds for future investments. Always ensure your calculations include a buffer for unexpected repairs and vacancies.