Rental Property ROI Calculator
Understanding Rental Property ROI Metrics
Investing in real estate requires more than just guessing; it requires analyzing the numbers to ensure a property will be profitable. This Rental Property ROI Calculator helps investors determine the viability of a potential investment by calculating key performance metrics like Cash Flow, Cap Rate, and Cash-on-Cash Return.
1. Monthly Cash Flow
Cash flow is the net amount of money moving into or out of your business every month. In real estate, it is calculated as your Total Rental Income minus Total Expenses (including the mortgage payment).
Example: If you collect $2,200 in rent, but your mortgage is $1,100 and other expenses (taxes, repairs, vacancy reserves) are $600, your monthly cash flow is $500. Positive cash flow is essential for long-term sustainability.
2. Capitalization Rate (Cap Rate)
The Cap Rate measures the natural rate of return on the property independent of debt. It allows you to compare the profitability of a property as if you bought it with all cash. It is calculated by dividing the Net Operating Income (NOI) by the Purchase Price.
- Formula: (NOI / Purchase Price) × 100
- Note: NOI excludes mortgage payments.
A "good" Cap Rate varies by market, but generally, investors look for 5% to 10% in residential real estate.
3. Cash-on-Cash Return (CoC)
Perhaps the most important metric for investors using leverage (loans), Cash-on-Cash Return measures the annual return on the actual cash you invested (Down Payment + Closing Costs).
Example: If you invested $55,000 total cash to buy a property, and that property generates $6,000 in annual positive cash flow (after paying the mortgage), your Cash-on-Cash return is 10.9%. This is often compared against stock market returns to judge efficiency.
How to Use This Calculator
Enter the Purchase Price and your financing details (Down Payment, Interest Rate). Be honest with your Operating Expenses—don't forget to account for property taxes, insurance, maintenance (usually 5-10% of rent), and vacancy periods. The calculator will instantly provide a snapshot of the investment's potential.