Rental Property ROI Calculator
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Rental Property ROI Calculator
Results
—
Enter details above and click Calculate
Understanding Rental Property Return on Investment (ROI)
Return on Investment (ROI) is a crucial metric for evaluating the profitability of any investment, and rental properties are no exception. For real estate investors, understanding and accurately calculating ROI helps in making informed decisions, comparing different investment opportunities, and assessing the performance of their portfolio.
Types of ROI for Rental Properties
There are several ways to calculate ROI for rental properties, each offering a different perspective on profitability. The most common include:
- Cap Rate (Capitalization Rate): This measures the net operating income (NOI) relative to the property's market value (or purchase price). It's a quick way to assess potential returns without considering financing.
- Cash-on-Cash Return: This measures the annual pre-tax cash flow relative to the actual cash invested. It's vital for investors who use financing and want to know how their cash down payment is performing.
- Total ROI (including appreciation): This provides a more comprehensive picture by including equity buildup, loan principal paydown, and potential property appreciation over the holding period, alongside cash flow.
How the Calculator Works
This calculator helps you compute a comprehensive ROI, considering both income and the costs associated with owning and eventually selling a rental property. It calculates two key metrics:
- Annual Cash-on-Cash Return: This shows the annual profit generated by the property relative to the total cash you've put into the investment. It's calculated as:
(Annual Net Cash Flow) / (Total Cash Invested) * 100%
Where:
- Annual Net Cash Flow = Annual Gross Rental Income – Annual Operating Expenses – Annual Mortgage Payment
- Total Cash Invested = Down Payment Amount + Closing Costs + Renovation Costs (assuming loan covers the rest of the purchase price)
- Total ROI (over holding period): This calculates the overall return on your investment after selling the property, accounting for all cash inflows and outflows over the entire time you owned it. It's calculated as:
((Total Income - Total Expenses - Initial Investment - Selling Costs) / Initial Investment) * 100%
Where:
- Total Income = (Annual Gross Rental Income * Number of Years Held) + Estimated Selling Price
- Total Expenses = (Annual Operating Expenses * Number of Years Held) + (Annual Mortgage Payment * Number of Years Held) + Closing Costs + Renovation Costs
- Initial Investment = Down Payment Amount + Closing Costs + Renovation Costs
- Selling Costs = Estimated Selling Costs
Key Inputs Explained:
- Purchase Price: The total price you paid or are paying for the property.
- Down Payment Amount: The cash you put down at purchase.
- Loan Amount: The amount borrowed from a lender. If you paid cash, this would be 0.
- Closing Costs: Fees paid at the end of a real estate transaction (e.g., legal fees, title insurance, appraisal fees).
- Renovation Costs: Expenses incurred to improve or repair the property before or during its rental period.
- Annual Gross Rental Income: The total rent collected from the property in a year before any expenses.
- Annual Operating Expenses: Recurring costs associated with owning and maintaining the property (e.g., property taxes, insurance, repairs, property management fees, HOA dues, utilities if paid by owner).
- Annual Mortgage Payment: The total annual payment towards your mortgage loan (principal and interest).
- Estimated Selling Price: The projected price at which you plan to sell the property.
- Estimated Selling Costs: Expenses incurred when selling the property (e.g., real estate agent commissions, closing costs for the seller).
- Number of Years Held: The duration you plan to own the rental property before selling.
Why Calculate ROI?
Regularly calculating ROI for your rental properties helps you:
- Assess Profitability: Determine if your property is generating adequate returns.
- Compare Investments: Benchmark your rental property against other real estate deals or investment vehicles.
- Identify Issues: Spot underperforming properties or areas where expenses might be too high.
- Make Strategic Decisions: Decide whether to hold, sell, or refinance a property based on its financial performance.
This calculator provides a powerful tool to gain insights into your rental property's financial health and make smarter investment choices.
function calculateROI() {
var purchasePrice = parseFloat(document.getElementById("purchasePrice").value) || 0;
var downPaymentAmount = parseFloat(document.getElementById("downPaymentAmount").value) || 0;
var loanAmount = parseFloat(document.getElementById("loanAmount").value) || 0;
var closingCosts = parseFloat(document.getElementById("closingCosts").value) || 0;
var renovationCosts = parseFloat(document.getElementById("renovationCosts").value) || 0;
var annualRentalIncome = parseFloat(document.getElementById("annualRentalIncome").value) || 0;
var annualOperatingExpenses = parseFloat(document.getElementById("annualOperatingExpenses").value) || 0;
var annualMortgagePayment = parseFloat(document.getElementById("annualMortgagePayment").value) || 0;
var sellingPrice = parseFloat(document.getElementById("sellingPrice").value) || 0;
var sellingCosts = parseFloat(document.getElementById("sellingCosts").value) || 0;
var timePeriodYears = parseInt(document.getElementById("timePeriodYears").value) || 0;
var initialInvestment = downPaymentAmount + closingCosts + renovationCosts;
var annualNetCashFlow = annualRentalIncome – annualOperatingExpenses – annualMortgagePayment;
var annualCashOnCashReturn = 0;
if (initialInvestment > 0) {
annualCashOnCashReturn = (annualNetCashFlow / initialInvestment) * 100;
}
var totalGrossIncome = annualRentalIncome * timePeriodYears;
var totalOperatingExpenses = annualOperatingExpenses * timePeriodYears;
var totalMortgagePayments = annualMortgagePayment * timePeriodYears;
var totalOutflows = initialInvestment + totalOperatingExpenses + totalMortgagePayments + sellingCosts;
var totalInflows = totalGrossIncome + sellingPrice;
var totalProfit = totalInflows – totalOutflows;
var totalROI = 0;
if (initialInvestment > 0) {
totalROI = (totalProfit / initialInvestment) * 100;
}
var resultText = "";
if (timePeriodYears > 0) {
resultText =
"Annual Cash-on-Cash ROI: " + annualCashOnCashReturn.toFixed(2) + "%" +
"
| Total ROI (over " + timePeriodYears + " years): " + totalROI.toFixed(2) + "%";
} else {
resultText =
"Annual Cash-on-Cash ROI: " + annualCashOnCashReturn.toFixed(2) + "%" +
"
| Enter Years Held for Total ROI";
}
document.getElementById("result").innerHTML = resultText;
}