Rental Property Rate of Return Calculator

by

Rental Property Rate of Return Calculator

(Tax, Ins, Maintenance, Vacancy)

Investment Performance

Annual Net Operating Income (NOI):

Capitalization Rate (Cap Rate):

Total Cash Invested:

Cash-on-Cash Return:

function calculateRentalROI() { var price = parseFloat(document.getElementById('purchasePrice').value); var rehab = parseFloat(document.getElementById('rehabCosts').value); var rent = parseFloat(document.getElementById('monthlyRent').value); var exp = parseFloat(document.getElementById('monthlyExpenses').value); if (isNaN(price) || isNaN(rehab) || isNaN(rent) || isNaN(exp) || price <= 0) { alert("Please enter valid positive numbers for all fields."); return; } var annualIncome = rent * 12; var annualExpenses = exp * 12; var noi = annualIncome – annualExpenses; var totalInvested = price + rehab; var capRate = (noi / price) * 100; var cashOnCash = (noi / totalInvested) * 100; document.getElementById('resNOI').innerHTML = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resCapRate').innerHTML = capRate.toFixed(2) + "%"; document.getElementById('resTotalInvested').innerHTML = "$" + totalInvested.toLocaleString(); document.getElementById('resCoC').innerHTML = cashOnCash.toFixed(2) + "%"; document.getElementById('roi-results').style.display = 'block'; }

Understanding Your Rental Property Rate of Return

Calculating the rate of return on a rental property is the most critical step for any real estate investor. It allows you to compare different opportunities and determine if a property will generate enough cash flow to justify the risk and capital expenditure.

Key Metrics Explained

  • Net Operating Income (NOI): This is the total annual income generated by the property minus all operating expenses. It does not include debt service (mortgage payments) or income taxes.
  • Cap Rate (Capitalization Rate): The Cap Rate is calculated by dividing the NOI by the purchase price. It provides a "snapshot" of the property's yield independent of financing methods.
  • Cash-on-Cash Return: This metric measures the annual cash flow relative to the total amount of cash actually invested (purchase price plus closing and rehab costs). It is widely considered the most important metric for "all-cash" buyers or those evaluating their immediate liquidity return.

How to Use This Calculator Effectively

To get an accurate result, ensure your "Monthly Expenses" field includes more than just the basics. Professional investors typically factor in:

  • Vacancy Rate: Usually 5-10% of gross rent.
  • Property Management: Usually 8-12% of gross rent.
  • Maintenance/Capex: Funds set aside for future repairs (roof, HVAC, etc.).
  • Property Taxes & Insurance: Annual costs divided by 12.

Example Calculation

If you purchase a duplex for $300,000 with $20,000 in upfront repairs, and it rents for $3,000 total per month with $1,200 in expenses:

  • Annual NOI: ($3,000 – $1,200) x 12 = $21,600
  • Cap Rate: $21,600 / $300,000 = 7.2%
  • Cash-on-Cash: $21,600 / $320,000 = 6.75%

Generally, in the current market, a Cap Rate between 5% and 10% is considered healthy, though this varies significantly by neighborhood and property type.

Leave a Comment