Real Estate Investment Rate of Return Calculator
Analyze the profitability of your rental property investments quickly and accurately.
Net Operating Income (NOI):
$0.00
Capitalization Rate (Cap Rate):
0.00%
Total Cash Investment:
$0.00
Annual Return on Investment (ROI):
0.00%
How to Calculate Real Estate Rate of Return
Understanding your investment's performance is critical for building a successful real estate portfolio. This calculator focuses on the fundamental metrics that professional investors use to compare properties: Net Operating Income (NOI), Cap Rate, and Return on Investment (ROI).
Key Metrics Explained
- Net Operating Income (NOI): This is your total annual income minus all operating expenses. It represents the cash flow generated by the property before any debt service (mortgage payments) or income taxes.
- Cap Rate: The Capitalization Rate is calculated by dividing the NOI by the purchase price. It is used to estimate the investor's potential return on investment in the real estate market, assuming the property is purchased with cash.
- Return on Investment (ROI): Unlike the Cap Rate, ROI accounts for the total initial cash outlay, including closing costs and immediate repairs. It measures the annual profit as a percentage of the total money you actually put into the deal.
Example Calculation
Imagine you purchase a duplex for $400,000. You spend $10,000 on closing costs and paint. Your total investment is $410,000.
If the property generates $3,500 a month in rent ($42,000/year) and your annual expenses (taxes, insurance, maintenance) total $12,000, your NOI is $30,000.
- Cap Rate: $30,000 / $400,000 = 7.50%
- Annual ROI: $30,000 / $410,000 = 7.32%
Why Operating Expenses Matter
Many novice investors fail to account for maintenance, vacancy rates, and property management. For a realistic Rate of Return, always estimate at least 10-15% of the gross income for maintenance and repairs to ensure your projections remain accurate over the long term.