function calculateRentalROI() {
var purchasePrice = parseFloat(document.getElementById("purchasePrice").value);
var downPaymentPercent = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTerm").value);
var monthlyRent = parseFloat(document.getElementById("monthlyRent").value);
var monthlyExpenses = parseFloat(document.getElementById("operatingExpenses").value);
if (isNaN(purchasePrice) || isNaN(downPaymentPercent) || isNaN(interestRate) || isNaN(monthlyRent)) {
alert("Please enter valid numeric values.");
return;
}
// Logic for Loan
var downPaymentAmount = purchasePrice * (downPaymentPercent / 100);
var loanAmount = purchasePrice – downPaymentAmount;
var monthlyInterest = (interestRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
var monthlyMortgage = 0;
if (interestRate > 0) {
monthlyMortgage = loanAmount * (monthlyInterest * Math.pow(1 + monthlyInterest, numberOfPayments)) / (Math.pow(1 + monthlyInterest, numberOfPayments) – 1);
} else {
monthlyMortgage = loanAmount / numberOfPayments;
}
// Logic for Returns
var totalMonthlyOutgo = monthlyMortgage + monthlyExpenses;
var monthlyCashFlow = monthlyRent – totalMonthlyOutgo;
var annualCashFlow = monthlyCashFlow * 12;
var cashOnCashROI = (annualCashFlow / downPaymentAmount) * 100;
// Cap Rate Logic (Net Operating Income / Purchase Price)
var annualNOI = (monthlyRent – monthlyExpenses) * 12;
var capRate = (annualNOI / purchasePrice) * 100;
// Display Results
document.getElementById("resMortgage").innerText = "$" + monthlyMortgage.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resCashFlow").innerText = "$" + monthlyCashFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resInvested").innerText = "$" + downPaymentAmount.toLocaleString();
document.getElementById("resROI").innerText = cashOnCashROI.toFixed(2) + "%";
document.getElementById("resCapRate").innerText = capRate.toFixed(2) + "%";
document.getElementById("roiResults").style.display = "block";
}
Understanding Rental Property ROI: A Comprehensive Guide
Investing in real estate is one of the most proven paths to building long-term wealth. However, the difference between a profitable investment and a "money pit" lies in the math. Understanding your Return on Investment (ROI) is essential before signing any closing papers.
What is Rental Property ROI?
ROI measures the efficiency of an investment. In real estate, it specifically tracks the percentage of profit you earn on the money you have personally invested in the property. Unlike simple appreciation, ROI focuses on the active cash flow generated by the asset.
Key Metrics Explained
Cash-on-Cash Return: This is the ratio of annual before-tax cash flow to the total amount of cash invested. It is widely considered the most important metric for rental investors because it tells you exactly what your "out-of-pocket" money is earning.
Cap Rate (Capitalization Rate): This measures the property's natural rate of return without considering financing. It is calculated by taking the Net Operating Income (NOI) and dividing it by the purchase price. It is useful for comparing the intrinsic value of different properties.
Monthly Cash Flow: This is what remains from your rental income after every single expense—mortgage, taxes, insurance, and maintenance—has been paid.
Example ROI Calculation
Let's look at a realistic scenario for a single-family home:
In this case, your total monthly expenses are $1,699. Your Monthly Cash Flow is $501 ($2,200 – $1,699). Annually, you profit $6,012. Since you invested $50,000 for the down payment, your Cash-on-Cash ROI is 12.02% ($6,012 / $50,000).
How to Improve Your ROI
If your calculated ROI is lower than desired (typically investors aim for 8-12% or higher), consider these strategies:
Value-Add Renovations: Simple cosmetic upgrades like new paint or modern fixtures can allow you to increase monthly rent significantly.
Refinancing: If interest rates drop, refinancing your mortgage can lower your monthly outgo and instantly boost your cash flow.
Reduce Vacancy: Every month a property sits empty, your annual ROI drops. Focus on tenant retention and efficient marketing.
Professional Management: While it costs a percentage of rent, professional managers often reduce repair costs and keep units filled longer, which can actually increase ROI in the long run.