function calculateROI() {
// 1. Get Inputs
var price = parseFloat(document.getElementById("calc_price").value) || 0;
var closingCosts = parseFloat(document.getElementById("calc_closing").value) || 0;
var downPercent = parseFloat(document.getElementById("calc_down").value) || 0;
var interestRate = parseFloat(document.getElementById("calc_rate").value) || 0;
var termYears = parseFloat(document.getElementById("calc_term").value) || 0;
var rent = parseFloat(document.getElementById("calc_rent").value) || 0;
var vacancyRate = parseFloat(document.getElementById("calc_vacancy").value) || 0;
var annualTax = parseFloat(document.getElementById("calc_tax").value) || 0;
var annualInsurance = parseFloat(document.getElementById("calc_insurance").value) || 0;
var monthlyHOA = parseFloat(document.getElementById("calc_hoa").value) || 0;
// 2. Calculate Loan Details
var downPayment = price * (downPercent / 100);
var loanAmount = price – downPayment;
var monthlyRate = (interestRate / 100) / 12;
var numberOfPayments = termYears * 12;
var monthlyMortgage = 0;
if (loanAmount > 0 && interestRate > 0) {
monthlyMortgage = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
} else if (loanAmount > 0 && interestRate === 0) {
monthlyMortgage = loanAmount / numberOfPayments;
}
// 3. Calculate Operating Expenses
var monthlyTax = annualTax / 12;
var monthlyInsurance = annualInsurance / 12;
var vacancyCost = rent * (vacancyRate / 100);
var totalMonthlyExpenses = monthlyMortgage + monthlyTax + monthlyInsurance + monthlyHOA + vacancyCost;
var operatingExpensesNoMortgage = monthlyTax + monthlyInsurance + monthlyHOA + vacancyCost;
// 4. Calculate Cash Flow
var monthlyCashFlow = rent – totalMonthlyExpenses;
var annualCashFlow = monthlyCashFlow * 12;
// 5. Calculate Returns
var totalCashInvested = downPayment + closingCosts;
var cocRoi = 0;
if (totalCashInvested > 0) {
cocRoi = (annualCashFlow / totalCashInvested) * 100;
}
var annualNOI = (rent * 12) – (operatingExpensesNoMortgage * 12);
var capRate = 0;
if (price > 0) {
capRate = (annualNOI / price) * 100;
}
// 6. Update Display
document.getElementById("roi_results").style.display = "block";
document.getElementById("res_cash_needed").innerText = formatCurrency(totalCashInvested);
document.getElementById("res_expenses").innerText = formatCurrency(totalMonthlyExpenses);
var monthlyEl = document.getElementById("res_monthly_cf");
monthlyEl.innerText = formatCurrency(monthlyCashFlow);
monthlyEl.className = "roi-result-value " + (monthlyCashFlow >= 0 ? "roi-positive" : "roi-negative");
var annualEl = document.getElementById("res_annual_cf");
annualEl.innerText = formatCurrency(annualCashFlow);
annualEl.className = "roi-result-value " + (annualCashFlow >= 0 ? "roi-positive" : "roi-negative");
document.getElementById("res_coc").innerText = cocRoi.toFixed(2) + "%";
document.getElementById("res_cap").innerText = capRate.toFixed(2) + "%";
}
function formatCurrency(num) {
return "$" + num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
Understanding Rental Property ROI
Calculating the Return on Investment (ROI) is crucial for real estate investors to evaluate the profitability of a rental property. Unlike buying a stock where the price is the only variable, real estate involves mortgage leverage, tax benefits, and ongoing operational costs. This calculator focuses on the two most important metrics: Cash on Cash Return and Cap Rate.
What is Cash on Cash Return?
Cash on Cash Return measures the annual cash income earned on the property against the actual cash invested. It is often considered the most accurate metric for financing investors because it accounts for the power of leverage (the mortgage).
Formula:
Cash on Cash ROI = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100%
Total Cash Invested typically includes your down payment, closing costs, and any immediate renovation costs. Annual Cash Flow is your net profit after paying all expenses, including the mortgage.
How to Interpret the Results
Positive Cash Flow: Indicates the property generates income after all expenses are paid. This is essential for long-term sustainability.
Cap Rate (Capitalization Rate): This metric ignores financing and looks at the raw potential of the asset. It is calculated by dividing Net Operating Income (NOI) by the purchase price. It allows you to compare properties regardless of how they are purchased (cash vs. loan).
What is a "Good" ROI?
While target returns vary by market and strategy, many investors aim for a Cash on Cash return of 8-12%. In highly appreciative markets, investors might accept a lower cash flow (e.g., 4-6%) in exchange for potential long-term value growth. Conversely, in stable markets with lower appreciation, investors often demand higher immediate cash flow.
Common Expenses to Watch Out For
Novice investors often underestimate expenses, leading to negative cash flow. Ensure you account for:
Vacancy Rates: No property is occupied 100% of the time. Allocating 5-8% of rent for vacancy is a prudent safeguard.
Maintenance & CapEx: Roofs leak and water heaters break. Setting aside reserves (Maintenance) is vital for when capital expenditures (CapEx) arise.
Property Management: Even if you self-manage now, factoring in a management fee (usually 8-10%) ensures the deal still works if you hire a professional later.