Rental Property ROI & Cap Rate Calculator
Calculate your potential return on investment for rental properties.
Understanding Rental Property Returns
Investing in real estate requires a clear understanding of the numbers behind the asset. This calculator helps you determine if a property is a "good deal" by analyzing three key metrics: Cash Flow, Cap Rate, and Cash-on-Cash Return.
What is the Capitalization Rate (Cap Rate)?
The Cap Rate is used to compare different real estate investments. It is calculated by dividing the Net Operating Income (NOI) by the purchase price of the property. It does not take financing (mortgages) into account, providing a "pure" look at the property's performance as if it were bought in cash.
Cash-on-Cash Return vs. Cap Rate
While the Cap Rate looks at the property value, the Cash-on-Cash Return measures the return on the actual money you outlaid. This includes your down payment, closing costs, and immediate renovation expenses. If you use leverage (a mortgage), your Cash-on-Cash return is often different from your Cap Rate.
Example Calculation
Imagine you buy a property for $200,000 and spend $10,000 on renovations. Your total investment is $210,000. If the monthly rent is $2,000 and your total expenses (property tax, insurance, repairs) are $800, your numbers look like this:
- Monthly Cash Flow: $1,200 ($2,000 – $800)
- Annual NOI: $14,400
- Cap Rate: 7.2% ($14,400 / $200,000)
- Cash-on-Cash Return: 6.85% ($14,400 / $210,000)