Investing in real estate requires a deep dive into the numbers to ensure a property will be profitable. This Rental Property ROI Calculator helps you evaluate the potential of a residential investment by factoring in mortgage costs, operating expenses, and vacancy rates.
Key Metrics Explained
Cap Rate (Capitalization Rate): This is the ratio of Net Operating Income (NOI) to the property purchase price. It reflects the property's profitability independent of financing.
Cash-on-Cash Return: This measures the annual cash flow relative to the actual cash you invested (down payment and closing costs). It is the most critical metric for investors using leverage.
Cash Flow: The amount of money left over every month after all expenses and mortgage payments have been paid.
Example Calculation
Suppose you buy a property for $300,000 with a 20% down payment ($60,000). If your monthly rent is $2,500 and your total expenses (including mortgage, tax, insurance, and maintenance) total $2,100, your monthly cash flow is $400. Your annual cash flow would be $4,800, resulting in an 8% Cash-on-Cash return ($4,800 / $60,000).
Pro Tips for Investors
Always include a buffer for maintenance and vacancy. A standard rule of thumb is to set aside 5-10% of gross rent for maintenance and another 5% for vacancy. Neglecting these "hidden" costs is the primary reason new investors see negative returns.
function calculateRentalROI() {
var price = parseFloat(document.getElementById('propPrice').value);
var downPercent = parseFloat(document.getElementById('downPayPercent').value);
var rate = parseFloat(document.getElementById('intRate').value) / 100 / 12;
var term = parseFloat(document.getElementById('loanTerm').value) * 12;
var rent = parseFloat(document.getElementById('monthlyRent').value);
var tax = parseFloat(document.getElementById('annualTax').value) / 12;
var ins = parseFloat(document.getElementById('annualIns').value) / 12;
var maintVac = (parseFloat(document.getElementById('maintVacPercent').value) / 100) * rent;
if (isNaN(price) || isNaN(rent) || isNaN(downPercent)) {
alert("Please enter valid numbers for Price, Down Payment, and Rent.");
return;
}
// Mortgage Calculation
var downPaymentAmount = price * (downPercent / 100);
var principal = price – downPaymentAmount;
var mortgage = 0;
if (rate > 0) {
mortgage = principal * (rate * Math.pow(1 + rate, term)) / (Math.pow(1 + rate, term) – 1);
} else {
mortgage = principal / term;
}
// Monthly Totals
var totalExpenses = mortgage + tax + ins + maintVac;
var cashFlow = rent – totalExpenses;
// Annual Metrics
var annualNOI = (rent – tax – ins – maintVac) * 12;
var capRate = (annualNOI / price) * 100;
var cashOnCash = ((cashFlow * 12) / downPaymentAmount) * 100;
// Display Results
document.getElementById('resMortgage').innerText = "$" + mortgage.toFixed(2);
document.getElementById('resTotalExpenses').innerText = "$" + totalExpenses.toFixed(2);
document.getElementById('resCashFlow').innerText = "$" + cashFlow.toFixed(2);
document.getElementById('resNOI').innerText = "$" + annualNOI.toFixed(2);
document.getElementById('resCapRate').innerText = capRate.toFixed(2) + "%";
document.getElementById('resCoC').innerText = cashOnCash.toFixed(2) + "%";
document.getElementById('roi-results').style.display = 'block';
}