Investing in real estate is one of the most reliable ways to build wealth, but simply buying a property and renting it out doesn't guarantee a profit. To succeed, you must understand the numbers behind the deal. This Rental Property ROI Calculator helps investors analyze the potential returns of a property before signing the dotted line.
Key Metrics Explained
Understanding these three critical metrics will help you make smarter investment decisions:
Cash Flow: This is the net amount of money left in your pocket every month after all operating expenses and mortgage payments are made. Positive cash flow is essential for long-term sustainability.
Cash on Cash Return (CoC ROI): This measures the annual return on the actual cash you invested (down payment + closing costs + rehab costs). It is calculated as: (Annual Cash Flow / Total Cash Invested) × 100. A CoC return of 8-12% is generally considered good in many markets.
Cap Rate (Capitalization Rate): This metric evaluates the profitability of a property regardless of financing. It is calculated as: (Net Operating Income / Purchase Price) × 100. It helps compare properties as if they were bought with all cash.
Understanding Operating Expenses
Many new investors underestimate expenses, leading to negative cash flow. Beyond the mortgage, you must account for:
Vacancy: Properties won't be rented 365 days a year. Allocating 5-8% of rent for vacancy ensures you have a buffer for turnover periods.
Maintenance & CapEx: Even new homes break. Setting aside 5-10% of monthly rent for repairs (Maintenance) and major replacements like roofs or HVAC (Capital Expenditures) is crucial.
Property Management: Even if you self-manage now, calculating a 8-10% management fee ensures the deal still works if you decide to hire a professional later.
Example Calculation
Imagine purchasing a property for $300,000 with 20% down ($60,000). The monthly rent is $2,500.
If your total monthly expenses (mortgage, tax, insurance, maintenance) equal $2,100, your monthly cash flow is $400. Your annual cash flow is $4,800. If your total cash invested (down payment + closing costs) was $65,000, your Cash on Cash Return would be 7.38%.
function calculateRentalROI() {
// 1. Get Input Values
var price = parseFloat(document.getElementById('rp_price').value) || 0;
var downPercent = parseFloat(document.getElementById('rp_down').value) || 0;
var interestRate = parseFloat(document.getElementById('rp_rate').value) || 0;
var termYears = parseFloat(document.getElementById('rp_term').value) || 0;
var rent = parseFloat(document.getElementById('rp_rent').value) || 0;
var annualTax = parseFloat(document.getElementById('rp_tax').value) || 0;
var annualIns = parseFloat(document.getElementById('rp_insurance').value) || 0;
var monthlyHoa = parseFloat(document.getElementById('rp_hoa').value) || 0;
var maintPercent = parseFloat(document.getElementById('rp_maint').value) || 0;
var vacancyPercent = parseFloat(document.getElementById('rp_vacancy').value) || 0;
var capexPercent = parseFloat(document.getElementById('rp_capex').value) || 0;
var closingCosts = parseFloat(document.getElementById('rp_closing').value) || 0;
// 2. Calculate Mortgage (Principal & Interest)
var downPaymentAmount = price * (downPercent / 100);
var loanAmount = price – downPaymentAmount;
var monthlyRate = (interestRate / 100) / 12;
var numPayments = termYears * 12;
var mortgagePayment = 0;
if (interestRate > 0 && termYears > 0) {
mortgagePayment = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numPayments)) / (Math.pow(1 + monthlyRate, numPayments) – 1);
} else if (termYears > 0) {
mortgagePayment = loanAmount / numPayments;
}
// 3. Calculate Monthly Expenses
var monthlyTax = annualTax / 12;
var monthlyIns = annualIns / 12;
var vacancyCost = rent * (vacancyPercent / 100);
var maintCost = rent * (maintPercent / 100);
var capexCost = rent * (capexPercent / 100);
// Total Operating Expenses (excluding Mortgage)
var operatingExpenses = monthlyTax + monthlyIns + monthlyHoa + vacancyCost + maintCost + capexCost;
// Total Monthly Expenses (including Mortgage)
var totalMonthlyExpenses = operatingExpenses + mortgagePayment;
// 4. Calculate Key Metrics
// Cash Flow
var monthlyCashFlow = rent – totalMonthlyExpenses;
var annualCashFlow = monthlyCashFlow * 12;
// NOI (Net Operating Income) = Annual Income – Annual Operating Expenses (Excluding Mortgage)
var annualNOI = (rent * 12) – (operatingExpenses * 12);
// Cap Rate = (NOI / Purchase Price) * 100
var capRate = 0;
if (price > 0) {
capRate = (annualNOI / price) * 100;
}
// Cash on Cash Return = (Annual Cash Flow / Total Cash Invested) * 100
var totalCashInvested = downPaymentAmount + closingCosts;
var cocReturn = 0;
if (totalCashInvested > 0) {
cocReturn = (annualCashFlow / totalCashInvested) * 100;
}
// 5. Display Results
document.getElementById('res_mortgage').innerText = '$' + mortgagePayment.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
document.getElementById('res_expenses').innerText = '$' + totalMonthlyExpenses.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
var cfElement = document.getElementById('res_cashflow');
cfElement.innerText = '$' + monthlyCashFlow.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
if(monthlyCashFlow >= 0) {
cfElement.classList.remove('negative');
cfElement.classList.add('positive');
} else {
cfElement.classList.remove('positive');
cfElement.classList.add('negative');
}
document.getElementById('res_noi').innerText = '$' + annualNOI.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
document.getElementById('res_caprate').innerText = capRate.toFixed(2) + '%';
var cocElement = document.getElementById('res_coc');
cocElement.innerText = cocReturn.toFixed(2) + '%';
if(cocReturn >= 0) {
cocElement.classList.remove('negative');
cocElement.classList.add('positive');
} else {
cocElement.classList.remove('positive');
cocElement.classList.add('negative');
}
// Show result box
document.getElementById('rp_results').style.display = 'block';
}