Rental Property ROI Calculator
Monthly Mortgage Payment (P&I):
Total Monthly Cash Flow:
Annual Net Operating Income (NOI):
Cap Rate:
Cash-on-Cash Return:
How to Calculate Rental Property ROI
Calculating the Return on Investment (ROI) for a rental property is essential for real estate investors to determine the potential profitability of a deal. Unlike simple stocks, real estate ROI involves multiple factors including leverage (mortgages), operating expenses, and vacancy rates.
Key Metrics Explained
- Cap Rate (Capitalization Rate): This measures the property's natural rate of return without considering financing. It is calculated by dividing the Net Operating Income (NOI) by the purchase price.
- Cash-on-Cash Return: This is often considered the most important metric for investors using loans. It calculates the annual cash flow relative to the actual cash invested (the down payment and closing costs).
- Net Operating Income (NOI): Your total annual income minus all operating expenses (excluding mortgage payments).
Real-World ROI Example
Imagine you purchase a duplex for $300,000 with a 20% down payment ($60,000). Your monthly rent is $2,500, and your total monthly expenses (property tax, insurance, and maintenance) are $600. If your mortgage payment is $1,213, your monthly cash flow is $687 ($2,500 – $600 – $1,213).
In this scenario, your annual cash flow is $8,244. To find your Cash-on-Cash return, you divide $8,244 by your $60,000 investment, resulting in a 13.74% CoC return.
Why Expenses Matter
New investors often underestimate "hidden" costs. For an accurate ROI calculation, always factor in:
- Property Taxes: Usually 1% to 2% of property value annually.
- Insurance: Landlord-specific policies are required.
- Maintenance/CapEx: Set aside 5-10% of rent for future repairs (roof, HVAC).
- Property Management: Usually 8-10% of monthly rent if you aren't self-managing.