Rental Property ROI Calculator
Investment Analysis
Total Cash Needed to Close:
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Monthly Mortgage Payment (P&I):
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Total Monthly Expenses:
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Monthly Cash Flow:
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Annual Cash Flow:
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Net Operating Income (NOI):
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Cash on Cash Return:
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Cap Rate:
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How to Calculate Rental Property ROI
Investing in real estate is one of the most reliable ways to build wealth, but not every property is a good deal. To determine if a rental property is a sound investment, you need to look beyond the purchase price and calculate the Cash on Cash Return. This calculator helps investors analyze the profitability of a potential rental unit by factoring in mortgage costs, operating expenses, and initial capital requirements.
Understanding Cash on Cash Return
Cash on Cash Return (CoC) is a metric used in real estate transactions that calculates the cash income earned on the cash invested in a property. Unlike standard Return on Investment (ROI), which might consider the total value of the asset, CoC focuses strictly on the actual cash flow relative to the cash you put down.
The formula is simple: (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100%.
A good Cash on Cash return typically falls between 8% and 12%, though this varies by market and investor strategy.
Key Definitions for this Calculator
- Purchase Price: The agreed-upon price to buy the property.
- Down Payment: The percentage of the purchase price paid upfront (typically 20-25% for investment properties).
- Closing Costs: Fees associated with finalizing the real estate transaction (title insurance, recording fees, etc.).
- Net Operating Income (NOI): This is your total annual revenue minus all necessary operating expenses (excluding mortgage payments). It measures the property's potential profitability as a standalone asset.
- Cap Rate: The ratio of Net Operating Income to property asset value. It helps compare different properties without considering financing/mortgage structures.
Why Cash Flow Matters More Than Appreciation
While property appreciation (increase in value over time) is a nice bonus, seasoned investors focus on Monthly Cash Flow. Positive cash flow ensures the property pays for itself and generates profit every month, protecting you during market downturns. If a property has negative cash flow, you are effectively paying every month to own it, which is a risky speculation strategy.