Rental Property ROI Calculator
Calculate your Cap Rate and Cash on Cash Return accurately.
Net Operating Income (Annual):
$0
Total Initial Investment:
$0
Cap Rate:
0%
Cash on Cash Return:
0%
How to Calculate Rental Property ROI
Investing in real estate requires a deep dive into the numbers to ensure a property will generate sufficient cash flow. This Rental Property ROI Calculator helps you determine two critical metrics: Cap Rate and Cash on Cash Return.
Understanding the Key Metrics
- Net Operating Income (NOI): This is your total annual income minus all operating expenses. It does not include mortgage payments, as it focuses on the property's performance itself.
- Cap Rate (Capitalization Rate): Calculated as (Annual NOI / Purchase Price). This metric allows investors to compare different real estate opportunities regardless of how they are financed.
- Cash on Cash Return (CoC): This is arguably the most important metric for investors using leverage. It is calculated as (Annual Cash Flow / Total Cash Invested). It shows the actual return on the literal cash you took out of your pocket.
Real-World Example
Imagine you buy a property for $250,000. You put $50,000 down and spend $15,000 on closing costs and minor repairs. Your total cash out of pocket is $65,000.
If the property rents for $2,000 a month and expenses (taxes, insurance, property management) are $600, your monthly NOI is $1,400. Annually, that is $16,800.
In this scenario, your Cap Rate would be 6.72%, and your Cash on Cash Return would be 25.8% (assuming the $16,800 covers any debt service or if bought cash).
Factors That Influence Your ROI
To maximize your rental returns, consider these three factors:
- Vacancy Rate: Always account for at least a 5% vacancy rate in your manual planning to ensure your budget isn't too tight.
- Maintenance Reserves: Older properties require higher reserves (usually 10-15% of rent) compared to new builds.
- Location: High-appreciation areas might have lower "Day 1" ROI but offer massive long-term wealth through equity growth.