Rental Property ROI Calculator
How to Calculate Rental Property ROI
Investing in real estate requires a clear understanding of the numbers behind the property. This Rental Property ROI Calculator helps you determine if a deal is worth pursuing by analyzing cash flow, Cap Rate, and Cash-on-Cash return. To get the most accurate results, ensure you include realistic estimates for maintenance and vacancy rates.
Key Metrics Explained
Cap Rate (Capitalization Rate): This measures the property's profitability regardless of the financing method. It is calculated by dividing the Net Operating Income (NOI) by the purchase price. A "good" cap rate usually falls between 4% and 10%, depending on the market.
Cash-on-Cash Return (CoC): This is the most important metric for most investors. It measures the annual cash flow relative to the actual cash you invested (down payment and closing costs). It tells you exactly what yield your liquid cash is generating.
Net Operating Income (NOI): This is your total income minus all operating expenses (taxes, insurance, maintenance), excluding your mortgage payment. This reflects the property's ability to generate income.
Investment Example
Imagine you buy a property for $200,000 with a 20% down payment ($40,000). If your gross rent is $2,000 and your total expenses (including mortgage) are $1,600, your monthly cash flow is $400. Annually, that's $4,800. Your Cash-on-Cash return would be $4,800 divided by $40,000, which equals a 12% return.