Rental Property ROI Calculator
Investment Analysis
Monthly Mortgage P&I:
Total Monthly Expenses:
Monthly Cash Flow:
Net Operating Income (Annual):
Cap Rate:
Cash on Cash Return:
How to Calculate Rental Property ROI
Calculating the Return on Investment (ROI) for a rental property involves analyzing several financial metrics to determine the profitability of the asset. Unlike a simple savings account, real estate involves leverage (debt), operating expenses, and tax implications.
Key Metrics Explained
- Cash Flow: This is the net amount of money moving in or out of the investment monthly. It is calculated by subtracting the mortgage payment and operating expenses from the rental income.
- Net Operating Income (NOI): This calculates the profitability of the property excluding debt service. It is essential for determining the Cap Rate. Formula: Income – Operating Expenses.
- Cap Rate (Capitalization Rate): This metric compares the property's purchase price to the income it generates. It helps investors compare properties regardless of financing methods.
- Cash on Cash Return: This is arguably the most important metric for leveraged investors. It measures the annual pre-tax cash flow against the actual cash invested (down payment + closing costs).
Example Scenario
Imagine you purchase a single-family home for $250,000 with a $50,000 down payment. You rent it out for $2,200/month.
If your annual expenses (taxes, insurance, maintenance) are $6,200 and your annual mortgage payments total roughly $15,180:
- Total Annual Income: $26,400
- NOI: $26,400 – $6,200 = $20,200
- Cash Flow: $20,200 – $15,180 (Mortgage) = $5,020
- Cash on Cash Return: ($5,020 / $50,000) * 100 = 10.04%
This calculator helps you perform these complex estimations instantly to decide if a property is a "deal" or a "pass".