Rental Property ROI & Cap Rate Calculator
Analyze your real estate investment potential in seconds.
How to Use the Rental Property ROI Calculator
Investing in real estate requires a clear understanding of your numbers. This calculator helps you determine the profitability of a rental property by evaluating key metrics used by professional investors. To get started, you need four primary figures: the purchase price, your total initial cash outlay (including closing costs and renovations), the expected monthly rent, and your estimated monthly operating expenses.
Understanding Key Real Estate Metrics
1. Net Operating Income (NOI)
NOI is the annual income generated by the property after operating expenses are deducted, but before mortgage payments or taxes are considered. It measures the property's ability to generate income independently of how it is financed.
2. Capitalization Rate (Cap Rate)
The Cap Rate is calculated by dividing the NOI by the purchase price. It provides a quick way to compare different real estate investments. For example, a property with an NOI of $18,000 and a price of $300,000 has a 6% Cap Rate.
3. Cash-on-Cash Return
This is often considered the most important metric for investors using leverage (mortgages). It measures the annual cash flow relative to the actual amount of cash you invested. If you put down $60,000 and receive $6,000 in annual profit, your cash-on-cash return is 10%.
Real Estate Calculation Example
Suppose you purchase a duplex for $250,000. You put $50,000 down (including closing costs). You rent both units for a total of $2,500 per month. Your expenses (property tax, insurance, and maintenance) average $800 per month.
- Monthly Cash Flow: $2,500 – $800 = $1,700
- Annual NOI: $1,700 * 12 = $20,400
- Cap Rate: ($20,400 / $250,000) * 100 = 8.16%
- Cash-on-Cash Return: ($20,400 / $50,000) * 100 = 40.8% (Note: This assumes no mortgage interest for simplicity).