Rental Property ROI Calculator
Investment Analysis Results
Cash on Cash Return
Cap Rate
Monthly Cash Flow
Total Initial Investment
How to Calculate Rental Property ROI
Investing in real estate requires a clear understanding of the numbers to ensure a property will be profitable. This calculator helps you determine the efficiency of your investment by analyzing the relationship between costs, expenses, and rental income.
Key Metrics Explained
- Cash on Cash Return: This is the ratio of annual before-tax cash flow to the total amount of cash invested. It measures the return on the actual cash you put into the deal.
- Cap Rate (Capitalization Rate): This is calculated by dividing the Net Operating Income (NOI) by the purchase price. It allows you to compare different real estate investments regardless of how they are financed.
- Net Operating Income (NOI): This is the total income generated by the property minus all necessary operating expenses (taxes, insurance, maintenance, management).
The ROI Calculation Formula
To find your ROI manually, use the following steps:
- Calculate Total Investment = Purchase Price + Closing Costs + Initial Repairs.
- Calculate Annual Gross Income = Monthly Rent × 12.
- Calculate Annual Operating Expenses = Sum of Taxes, Insurance, Maintenance (estimated), and Property Management fees.
- Determine Annual Cash Flow = Annual Gross Income – Annual Operating Expenses.
- ROI (Cash on Cash) = (Annual Cash Flow / Total Investment) × 100.
Example Scenario
Imagine you purchase a duplex for $250,000. You pay $5,000 in closing costs and spend $10,000 on new flooring and paint. Your total investment is $265,000.
The units rent for a total of $2,200 per month ($26,400 per year). After paying $3,000 in taxes, $1,200 in insurance, $1,320 in maintenance (5%), and $2,640 in management (10%), your annual net cash flow is $18,240.
In this case, your Cash on Cash Return would be 6.88% and your Cap Rate would be 7.30%.