function calculateROI() {
// Get Input Values
var price = parseFloat(document.getElementById('purchasePrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var closingCosts = parseFloat(document.getElementById('closingCosts').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var annualExpenses = parseFloat(document.getElementById('annualExpenses').value);
var rate = parseFloat(document.getElementById('interestRate').value);
var years = parseFloat(document.getElementById('loanTerm').value);
// Validation
if (isNaN(price) || isNaN(downPayment) || isNaN(monthlyRent)) {
alert("Please enter valid numbers for Purchase Price, Down Payment, and Rent.");
return;
}
// Loan Calculations
var loanAmount = price – downPayment;
var monthlyRate = (rate / 100) / 12;
var numberOfPayments = years * 12;
// Mortgage Payment Logic
var mortgagePayment = 0;
if (loanAmount > 0 && rate > 0) {
mortgagePayment = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
} else if (loanAmount > 0 && rate === 0) {
mortgagePayment = loanAmount / numberOfPayments;
}
// Cash Flow Calculations
var totalMonthlyExpenses = (annualExpenses / 12) + mortgagePayment;
var monthlyCashFlow = monthlyRent – totalMonthlyExpenses;
var annualCashFlow = monthlyCashFlow * 12;
// ROI Metrics
var totalCashInvested = downPayment + closingCosts;
var cashOnCashReturn = 0;
if (totalCashInvested > 0) {
cashOnCashReturn = (annualCashFlow / totalCashInvested) * 100;
}
// Cap Rate Logic (Net Operating Income / Price)
// NOI = Annual Income – Annual Operating Expenses (Excluding Financing)
var annualNOI = (monthlyRent * 12) – annualExpenses;
var capRate = 0;
if (price > 0) {
capRate = (annualNOI / price) * 100;
}
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
// Update UI
var resultsDiv = document.getElementById('results');
resultsDiv.style.display = 'block';
var cocElement = document.getElementById('cocReturn');
cocElement.innerText = cashOnCashReturn.toFixed(2) + "%";
cocElement.className = "result-value " + (cashOnCashReturn >= 0 ? "positive" : "negative");
var cashFlowElement = document.getElementById('monthlyCashFlow');
cashFlowElement.innerText = formatter.format(monthlyCashFlow);
cashFlowElement.className = "result-value " + (monthlyCashFlow >= 0 ? "positive" : "negative");
document.getElementById('capRate').innerText = capRate.toFixed(2) + "%";
document.getElementById('monthlyMortgage').innerText = formatter.format(mortgagePayment);
}
Understanding Rental Property ROI
Calculating the Return on Investment (ROI) for a rental property is crucial for real estate investors to ensure their capital is working efficiently. Unlike simple stock investments, real estate involves multiple variables including leverage (mortgages), operating expenses, and cash flow.
Key Metrics Explained
1. Cash on Cash Return
This is arguably the most important metric for rental investors. It measures the annual return you make on the actual cash you invested (Down Payment + Closing Costs). A Cash on Cash return of 8-12% is generally considered healthy in many markets.
Formula:(Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
2. Capitalization Rate (Cap Rate)
The Cap Rate measures the property's natural profitability irrespective of how it is financed. It helps compare properties quickly by assuming an all-cash purchase. It is calculated by dividing the Net Operating Income (NOI) by the property asset value.
Formula:(Net Operating Income / Purchase Price) × 100
3. Net Operating Income (NOI)
This represents the total income the property generates after all operating expenses (taxes, insurance, repairs, vacancy) are paid, but before the mortgage is paid. A positive NOI indicates the property can cover its own operating costs.
How to Use This Calculator
To get an accurate assessment of a potential deal, ensure you input realistic numbers:
Purchase Price & Down Payment: Determine your leverage. A 20-25% down payment is standard for investment loans.
Annual Operating Expenses: Do not underestimate this. Include property taxes, insurance, HOA fees, vacancy reserves (usually 5-10% of rent), and maintenance reserves.
Mortgage Details: Investment property loans often carry interest rates 0.5% to 1% higher than primary residence mortgages.
Why Cash Flow Matters
While appreciation (the property increasing in value) is a great wealth builder, cash flow keeps you in business. Positive monthly cash flow ensures you can handle repairs and vacancies without dipping into personal savings. This calculator focuses heavily on Monthly Cash Flow to help you assess the immediate financial safety of the investment.