Rental Property ROI Calculator
Estimated Monthly Mortgage:
$0.00
Monthly Net Cash Flow:
$0.00
Net Operating Income (Annual):
$0.00
Cap Rate:
0.00%
Cash on Cash Return (CoC):
0.00%
Understanding Rental Property Investment Analysis
Investing in real estate is a powerful way to build wealth, but the difference between a profitable asset and a money pit often comes down to the numbers. Using a Rental Property ROI Calculator is essential for investors to evaluate the potential performance of a property before signing on the dotted line.
Key Metrics Explained
This calculator focuses on the three most critical metrics for buy-and-hold investors:
- Cash Flow: This is the net profit you pocket every month after all expenses and mortgage payments are made. Positive cash flow ensures the property pays for itself and provides passive income.
- Cash on Cash Return (CoC): This metric measures the annual return on the actual cash you invested (down payment + closing costs). It is a superior metric to simple ROI because it accounts for leverage (the mortgage). A CoC of 8-12% is often considered a solid target for residential rentals.
- Cap Rate (Capitalization Rate): Cap rate measures the property's natural rate of return assuming it was bought with all cash. It helps compare the profitability of different properties regardless of financing terms. It is calculated by dividing the Net Operating Income (NOI) by the purchase price.
How to Calculate Cash Flow
To determine your monthly cash flow, you must subtract all liabilities from your gross rental income. The formula used in this tool is:
Cash Flow = Rental Income – (Operating Expenses + Mortgage Payment)
Operating expenses should include property taxes, insurance, maintenance reserves, property management fees, and vacancy allowances. Underestimating these expenses is the most common mistake new investors make.
Why Leverage Matters
Real estate offers a unique advantage called leverage. By using a mortgage, you can control a valuable asset with a relatively small down payment. This calculator demonstrates the power of leverage through the Cash on Cash Return metric. Even if the property price only appreciates slightly, your return on the specific dollars you invested can be significantly higher due to the bank financing the majority of the purchase.