Investment Property ROI Calculator
Total Initial Investment:
$0
Annual Net Operating Income (NOI):
$0
Cap Rate:
0%
Cash-on-Cash ROI:
0%
Monthly Cash Flow:
$0
How to Calculate Rental Property ROI
Return on Investment (ROI) is the most critical metric for real estate investors. It measures the efficiency of an investment or compares the efficiencies of several different investments. In real estate, we primarily look at two figures: the Cap Rate and the Cash-on-Cash Return.
Example Scenario: You buy a duplex for $250,000. You spend $5,000 on closing and $10,000 on new flooring. Your total "cash out of pocket" is $265,000. If it rents for $2,200 total and expenses are $600/month, your ROI is calculated based on that $1,600 monthly profit.
Understanding the Metrics
- Cap Rate (Capitalization Rate): This is the ratio of Net Operating Income (NOI) to the property asset value. It ignores financing and shows how the property performs on its own merits.
- Cash-on-Cash ROI: This is the ratio of annual before-tax cash flow to the total amount of cash invested. This is often the more "real world" number for investors as it accounts for repairs and closing costs.
- Net Operating Income (NOI): All revenue from the property, minus all reasonably necessary operating expenses.
The Formula Used
Our calculator uses the following mathematical logic:
- Total Investment = Purchase Price + Closing Costs + Repair Costs
- Gross Annual Income = (Monthly Rent * 12) * (1 – Vacancy Rate / 100)
- Annual Expenses = Monthly Expenses * 12
- Annual NOI = Gross Annual Income – Annual Expenses
- Cash-on-Cash ROI = (Annual NOI / Total Investment) * 100
Tips for Maximizing Your ROI
To increase your return, focus on two levers: increasing income or decreasing expenses. Strategic renovations that allow for higher rent, screening tenants effectively to reduce vacancy and turnover costs, and appealing property tax assessments are common ways professional investors "force appreciation" and boost their ROI percentages.