Rental Property Yield & ROI Calculator
Calculate your potential return on investment for a rental property to make informed real estate decisions.
Understanding Your Rental Property Returns
Investing in real estate requires a clear understanding of cash flow and yield. This calculator helps you break down the most important metrics used by professional real estate investors.
What is the Capitalization Rate (Cap Rate)?
The Cap Rate is the ratio of Net Operating Income (NOI) to the property's purchase price. It allows investors to compare different properties regardless of how they are financed. A "good" cap rate usually falls between 4% and 10%, depending on the market and property type.
Cash-on-Cash Return (ROI) vs. Cap Rate
While Cap Rate looks at the price of the asset, Cash-on-Cash Return (ROI) looks at the actual money you put into the deal. This includes closing costs and immediate repairs. If you pay for a property in cash, your Cap Rate and ROI will be similar. If you use leverage (a mortgage), these numbers will diverge significantly.
Example Calculation
Imagine you buy a property for $250,000. You spend $5,000 on closing and $10,000 on new flooring. Your total investment is $265,000.
- Monthly Rent: $2,000
- Monthly Expenses: $600 (Tax, Insurance, Maintenance)
- Annual NOI: ($2,000 – $600) * 12 = $16,800
- Cap Rate: ($16,800 / $250,000) = 6.72%
- ROI: ($16,800 / $265,000) = 6.33%
Key Factors to Consider
When using this calculator, don't forget to account for a vacancy rate. Even the best properties sit empty occasionally. Most experts recommend factoring in a 5% to 8% vacancy rate to ensure your budget remains realistic over the long term.