Rental Property ROI Calculator
Total Investment
$0
Monthly Cash Flow
$0
Annual Cash Flow
$0
Cap Rate
0%
Cash on Cash Return
0%
Annual Operating Income (NOI)
$0
Understanding Your Rental Property ROI
Investing in real estate requires a clear understanding of the numbers to ensure a property is a viable asset rather than a liability. This Rental Property ROI Calculator helps you determine the profitability of a potential purchase by analyzing key financial metrics.
Key Metrics Explained
- Cap Rate (Capitalization Rate): This calculates the return on a property regardless of financing. It is the Net Operating Income (NOI) divided by the purchase price. It is useful for comparing different properties side-by-side.
- Cash on Cash Return (CoC): This is the most important metric for investors using leverage (mortgages). It measures the annual cash flow relative to the actual amount of cash you invested out of pocket (down payment, closing costs, and repairs).
- Net Operating Income (NOI): This is the total income minus all operating expenses (taxes, insurance, maintenance), excluding mortgage payments.
- Monthly Cash Flow: The "bottom line" amount of money left over after every single bill—including the mortgage—is paid.
Real-World Example Calculation
Imagine you purchase a duplex for $300,000. You spend $6,000 on closing costs and $4,000 on new carpets and paint. Your total investment is $310,000 (assuming a cash purchase for this example simplicity).
If the property rents for $2,800 per month and your total operating expenses (taxes, insurance, repairs) are $800 per month, your NOI is $2,000 per month or $24,000 annually.
Your Cap Rate would be: ($24,000 / $300,000) = 8.0%.
How to Improve Your ROI
Investors can improve their returns by increasing rental income through renovations, reducing vacancy rates through better tenant screening, or appealing property tax assessments to lower monthly expenses. Always account for a "Capex" (Capital Expenditure) reserve for big-ticket items like roof replacements or HVAC repairs.