Rental Property ROI Calculator
Acquisition Costs
Monthly Operations
Understanding Rental Property ROI
Investing in real estate is one of the most reliable ways to build long-term wealth, but understanding the numbers is critical before making an offer. This ROI (Return on Investment) calculator helps you analyze the profitability of a potential rental property by looking at three key metrics: Cash Flow, Cap Rate, and Cash-on-Cash Return.
1. Net Operating Income (NOI)
NOI is the total income a property generates after all operating expenses are paid, but before mortgage payments. It represents the property's ability to generate profit independently of how it is financed.
2. Capitalization Rate (Cap Rate)
The Cap Rate is used to compare different real estate investments. It is calculated by dividing the Annual NOI by the Purchase Price. A "good" cap rate typically falls between 4% and 10%, depending on the market location and property type.
3. Cash-on-Cash (CoC) Return
This is often considered the most important metric for investors using leverage (mortgages). It measures the annual cash return on the actual cash you invested (down payment, closing costs, and repairs). If you put down $50,000 and make $5,000 in annual profit, your CoC return is 10%.
Realistic Example Analysis
Imagine you buy a property for $250,000. You pay $5,000 in closing costs and spend $10,000 on new flooring and paint. Your total investment is $265,000 (if buying cash) or your total out-of-pocket if financing. If the property rents for $2,200 and your taxes, insurance, and maintenance total $800, your monthly NOI is $1,400. After a $1,100 mortgage payment, you are left with $300 in monthly "pocket change" cash flow.