Rental Property ROI Calculator
Total Initial Investment:
$0.00
Monthly Operating Expenses:
$0.00
Monthly Net Cash Flow:
$0.00
Annual Net Operating Income (NOI):
$0.00
Cash-on-Cash Return (Cap Rate):
0.00%
How to Calculate ROI on Rental Property
Return on Investment (ROI) is the most critical metric for real estate investors. It allows you to compare the profitability of different properties and determine if a deal makes financial sense. This calculator focuses on the Cash-on-Cash Return, which measures the annual cash flow relative to the actual cash you invested.
The Formula for Rental Success
To find your ROI, we follow these steps:
- Step 1: Calculate Total Investment. This includes the purchase price, closing costs, and any immediate rehab or repair costs needed to make the property rent-ready.
- Step 2: Determine Annual Income. This is your monthly rent multiplied by 12, minus a vacancy factor (usually 5-10%).
- Step 3: Subtract Operating Expenses. You must account for property taxes, insurance, management fees, and a reserve for future maintenance and repairs.
- Step 4: Divide Annual Cash Flow by Total Investment. The resulting percentage is your Cash-on-Cash return.
Real-World Example
Imagine you buy a duplex for $250,000. You spend $5,000 on closing and $10,000 on new flooring and paint. Your total investment is $265,000.
If the property rents for $2,000 a month, your gross annual income is $24,000. After paying for taxes ($3,000), insurance ($1,200), and setting aside 23% for vacancy, management, and repairs ($5,520), your Net Operating Income (NOI) is $14,280.
Your ROI would be: $14,280 / $265,000 = 5.39%.
What is a "Good" ROI?
In most markets, a Cash-on-Cash return of 8% to 12% is considered excellent for long-term rentals. However, this varies by location. High-growth areas might offer lower immediate ROI but higher long-term appreciation, while stable "cash flow" markets often provide higher monthly yields but lower property value growth.