Rental Property ROI Calculator
Calculate your real estate investment potential in seconds.
Investment Analysis Results
Total Investment:
Annual Cash Flow:
Annual ROI:
Cap Rate:
Understanding Rental Property ROI
Return on Investment (ROI) is the most critical metric for real estate investors. It measures the efficiency of an investment by comparing the amount of return relative to the cost of the investment. For landlords, this calculation helps determine whether a property is a "cash cow" or a "money pit."
The Rental ROI Formula
This calculator uses the Cash-on-Cash Return methodology, which is the gold standard for real estate performance. The formula is:
Key Definitions
- Total Investment: This is the sum of your purchase price, closing costs, and immediate renovation needs. It represents the total "cash out of pocket" to get the asset performing.
- Net Cash Flow: This is your monthly rent minus all operating expenses (taxes, insurance, HOA fees, repairs, and property management).
- Cap Rate: Capitalization Rate is calculated by dividing the Net Operating Income (NOI) by the current market value (purchase price). Unlike ROI, it does not include renovation costs or financing variables, providing a "pure" look at the property's performance.
Real-Life Example
Imagine you purchase a duplex for $300,000. You pay $6,000 in closing costs and spend $14,000 updating the kitchens. Your total investment is $320,000.
If the units rent for a combined $3,000/month and your total monthly expenses (insurance, tax, water, maintenance) are $1,200, your monthly profit is $1,800.
Annual Cash Flow: $1,800 x 12 = $21,600
ROI: ($21,600 / $320,000) x 100 = 6.75%
What is a "Good" ROI?
In the real estate world, a "good" ROI varies by market. Generally, investors look for:
- 5-8%: Conservative, stable markets (Class A properties).
- 8-12%: Balanced markets with moderate growth potential.
- 15%+: High-risk or emerging markets (often requiring more hands-on management).