Real Estate Investment Return Calculator
Total Capital Invested
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Annual Net Operating Income (NOI)
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Capitalization Rate (Cap Rate)
0%
Cash-on-Cash Return
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Monthly Net Cash Flow
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Understanding Real Estate Investment Returns
Analyzing a rental property requires more than just looking at the monthly rent. Professional investors use specific metrics like Net Operating Income (NOI) and Cap Rate to determine if a property is a sound financial vehicle. This calculator helps you break down the true profitability of a cash-based real estate acquisition.
Key Real Estate Metrics Explained
- Total Capital Invested: This is the "all-in" cost of the property. It includes the purchase price plus any closing costs, legal fees, and the initial renovation or "rehab" budget required to make the unit rent-ready.
- Net Operating Income (NOI): This is your total annual income minus all operating expenses (taxes, insurance, maintenance, management). It does not include debt service (mortgage payments).
- Cap Rate (Capitalization Rate): Calculated as (Annual NOI / Purchase Price). It is used to compare different real estate investments regardless of how they are financed. Higher cap rates generally indicate higher risk and higher potential return.
- Cash-on-Cash Return: Calculated as (Annual NOI / Total Capital Invested). This shows the actual yield on the total money you have out of pocket.
Example Calculation
Imagine you purchase a duplex for 300,000. Your closing costs are 6,000 and you spend 14,000 on new flooring and paint, making your Total Investment 320,000.
If the property generates 3,000 in monthly rent, but costs 800 per month in expenses (taxes, insurance, repairs), your monthly net is 2,200. Factoring in a 5% vacancy rate (150/mo), your adjusted monthly income is 2,050, resulting in an Annual NOI of 24,600.
In this scenario, your Cap Rate would be 8.2% (24,600 / 300,000) and your Cash-on-Cash Return would be 7.68% (24,600 / 320,000).
Factors That Impact Your ROI
Several variables can shift your returns significantly over time:
- Vacancy Rate: Even in high-demand areas, you should account for "turnover time" between tenants. A standard 5% vacancy rate assumes the unit is empty for roughly 18 days per year.
- Operating Expenses: These typically range from 35% to 50% of gross income. If you aren't accounting for property management or a long-term capital expenditure (CapEx) fund, your projected returns will be artificially inflated.
- Appreciation: While this calculator focuses on cash flow, property value growth over time provides a secondary "hidden" return on investment.