Rental Property ROI Calculator
Investment Analysis
Understanding Rental Property ROI: Cash Flow & Cap Rate
Investing in real estate is a powerful way to build wealth, but not every property is a good deal. To ensure profitability, investors must look beyond the purchase price and analyze the Cash Flow, Cash on Cash Return, and Capitalization Rate (Cap Rate). Our Rental Property ROI Calculator helps you crunch these numbers instantly.
What is Cash Flow?
Cash flow is the net income from a real estate investment after all mortgage payments and operating expenses have been made. It is calculated as:
Cash Flow = Total Rental Income – (Mortgage + Taxes + Insurance + HOA + Maintenance)
Positive cash flow means the property is putting money in your pocket every month, while negative cash flow implies you are losing money to hold the asset.
Cash on Cash Return (CoC ROI) Explained
While cash flow tells you the dollar amount you earn, the Cash on Cash Return measures the percentage return on the actual cash you invested (your down payment and closing costs). It is a critical metric for comparing the efficiency of your money against other investments like stocks or bonds.
For example, if you invest $50,000 cash to buy a property and it generates $5,000 in annual net cash flow, your CoC return is 10%.
Cap Rate vs. ROI
The Cap Rate (Capitalization Rate) measures a property's natural rate of return assuming you paid all cash (no loan). It is calculated by dividing the Net Operating Income (NOI) by the property's purchase price. This metric is essential for comparing the intrinsic value of different properties regardless of how they are financed.
How to Use This Calculator
- Purchase Price & Down Payment: Enter the agreed price and your cash contribution. This determines your loan amount.
- Interest Rate: Use the current 30-year fixed investment property mortgage rate (often 0.5% – 1% higher than residential rates).
- Monthly Expenses: Be realistic. Include vacancies, repairs (often estimated at 5-10% of rent), and management fees if applicable.
Use these metrics to determine if a property meets your investment criteria, such as the "1% Rule" (monthly rent should be at least 1% of the purchase price) or a specific cash flow target per door.