Rental Property ROI Calculator
Calculate Cap Rate, Cash Flow, and Cash-on-Cash Return for your next investment.
How to Calculate Rental Property ROI
Investing in real estate requires a clear understanding of the numbers. Return on Investment (ROI) is the most critical metric for determining if a property is a profitable asset or a financial burden. This calculator uses three primary methods to evaluate your potential deal:
1. Cash Flow
Monthly cash flow is the amount of profit left over after all operating expenses and mortgage payments have been made. Positive cash flow is essential for long-term sustainability. Our formula subtracts your monthly mortgage and estimated expenses (taxes, insurance, and maintenance) from your gross monthly rent.
2. Cap Rate (Capitalization Rate)
The Cap Rate is used to compare different real estate investments without considering financing. It is calculated by taking the Net Operating Income (NOI) and dividing it by the purchase price. Formula: (Annual Rent – Annual Operating Expenses) / Purchase Price. A "good" cap rate usually falls between 4% and 10%, depending on the market.
3. Cash-on-Cash Return (CoC)
While Cap Rate ignores loans, CoC Return specifically measures the return on the actual cash you invested. This includes your down payment and estimated closing costs (calculated here at 3% of the price). Formula: Annual Cash Flow / Total Cash Invested. This is often the most important metric for investors using leverage.
Example Calculation
If you buy a property for $200,000 with a 20% down payment ($40,000) and it generates $500 in monthly cash flow, your annual cash flow is $6,000. If your total cash in the deal (down payment + closing costs) is $46,000, your Cash-on-Cash return would be approximately 13.04%.