Rental Property ROI Calculator
Calculate Cash on Cash Return, Cap Rate, and Monthly Cash Flow for your real estate investment.
Purchase & Loan Details
Income & Expenses
Investment Analysis
How to Analyze a Rental Property Investment
Investing in real estate is one of the most powerful ways to build long-term wealth, but not every property is a good deal. To ensure your investment is sound, you need to look beyond the purchase price and analyze the operational efficiency and return metrics of the asset. This calculator focuses on three critical metrics: Cash Flow, Cash-on-Cash Return, and Cap Rate.
1. Cash on Cash Return (CoC)
Cash on Cash Return is perhaps the most important metric for rental property investors. It measures the annual cash income earned on the property against the actual cash invested (your down payment plus closing costs and repairs).
The Formula:
CoC = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
For example, if you invest $50,000 to buy a property (Down payment + closing costs) and it generates $4,000 in positive cash flow per year after all expenses (including mortgage), your Cash on Cash return is ($4,000 / $50,000) = 8%. This helps you compare real estate returns directly against other investments like stocks or bonds.
2. Net Operating Income (NOI) vs. Cash Flow
It is crucial to understand the difference between NOI and Cash Flow:
- NOI (Net Operating Income): This is your total income minus operating expenses (Taxes, Insurance, Maintenance, Vacancy). It excludes mortgage payments. It represents the profitability of the property itself, regardless of financing.
- Cash Flow: This is what ends up in your pocket. It is NOI minus your mortgage debt service (Principal & Interest).
3. Understanding Cap Rate (Capitalization Rate)
The Cap Rate measures the property's natural rate of return assuming you paid all cash. It is calculated as NOI / Purchase Price.
Cap rates allow you to compare properties with different prices and financing structures on an apples-to-apples basis. Generally, a higher Cap Rate implies a better return but may come with higher risk (e.g., a property in a declining neighborhood). A lower Cap Rate (3-5%) is typical for high-demand areas with lower risk.
4. Estimating Expenses
Novice investors often underestimate expenses. When using this calculator, ensure you account for:
- Vacancy: Even in hot markets, tenants move out. A conservative estimate is 5-8% (about 2-4 weeks of vacancy per year).
- Maintenance: Setting aside 5-10% of monthly rent for repairs is prudent. Roofs, HVAC systems, and water heaters eventually need replacing.
- CapEx: While maintenance covers small fixes, Capital Expenditures (CapEx) covers major replacements.