Real Estate ROI & Cap Rate Calculator
Analyze your property investment potential with precision.
How to Calculate Real Estate ROI
Understanding your Return on Investment (ROI) is the difference between a gambling habit and a professional real estate business. This calculator evaluates your potential property purchase by looking at two primary metrics: Cap Rate and Cash on Cash (CoC) Return.
Key Metrics Explained
Net Operating Income (NOI): This is your total annual income minus all operating expenses (excluding mortgage payments). It shows how much the property itself generates.
Cap Rate: The Capitalization Rate is the ratio of NOI to the property purchase price. It allows you to compare different properties regardless of how they are financed (cash vs. loan).
Cash on Cash Return: This is arguably the most important metric for financed buyers. It measures the annual cash flow relative to the actual "out-of-pocket" cash you spent (down payment, closing costs, and repairs).
Example Calculation
Imagine you buy a duplex for $350,000. You put 20% down ($70,000) and spend $10,000 on repairs and $5,000 on closing costs. Your total cash invested is $85,000. If the property rents for $2,500/month and expenses (including mortgage) are $1,800, your monthly cash flow is $700 ($8,400 annually). Your Cash on Cash return would be 9.88%.
Pro Tips for Real Estate Investors
- Don't forget the Vacancy Rate: Always factor in 5-10% vacancy to account for times when the property is unrented during tenant turnovers.
- Include Maintenance: Set aside 1% of the property value annually for repairs, even if the building is new.
- Verify Taxes: Property taxes often reset to a higher value after a sale. Check with the local assessor rather than relying on the seller's current bill.