Return on Investment (ROI) is the most critical metric for real estate investors. It helps you determine if a potential rental property is a profitable asset or a financial liability. This calculator factors in acquisition costs, financing details, and ongoing operating expenses to give you a realistic view of your potential returns.
Key Metrics Explained
Cap Rate (Capitalization Rate): This measures the property's natural rate of return without considering financing. It is calculated by dividing the Net Operating Income (NOI) by the purchase price.
Cash on Cash Return (CoC): This is the ratio of annual before-tax cash flow to the total amount of cash invested. It is highly sensitive to your loan terms and down payment.
Net Operating Income (NOI): Your total annual income minus all operating expenses (taxes, insurance, maintenance), excluding mortgage payments.
Example Calculation
If you purchase a property for $300,000 with a 20% down payment ($60,000):
Investors can improve their ROI by increasing rent, reducing vacancy rates through better tenant screening, or performing value-add renovations that allow for higher lease rates. Additionally, refinancing to a lower interest rate when the market allows can significantly boost your monthly cash flow.
function calculateRentalROI() {
// Inputs
var purchasePrice = parseFloat(document.getElementById('purchasePrice').value);
var downPaymentPercent = parseFloat(document.getElementById('downPaymentPercent').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var annualTaxes = parseFloat(document.getElementById('annualTaxes').value);
var annualInsurance = parseFloat(document.getElementById('annualInsurance').value);
var monthlyMaint = parseFloat(document.getElementById('monthlyMaint').value);
// Basic Validation
if (isNaN(purchasePrice) || isNaN(monthlyRent)) {
alert("Please enter valid numbers for price and rent.");
return;
}
// Mortgage Calculation
var downPaymentAmount = purchasePrice * (downPaymentPercent / 100);
var loanAmount = purchasePrice – downPaymentAmount;
var monthlyInterest = (interestRate / 100) / 12;
var numberOfPayments = loanTerm * 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;
}
// Expense Calculations
var monthlyTaxes = annualTaxes / 12;
var monthlyInsurance = annualInsurance / 12;
var totalMonthlyExpenses = monthlyTaxes + monthlyInsurance + monthlyMaint;
// Net Operating Income (Annual)
var annualGrossRent = monthlyRent * 12;
var annualOperatingExpenses = totalMonthlyExpenses * 12;
var NOI = annualGrossRent – annualOperatingExpenses;
// Cash Flow
var monthlyCashFlow = monthlyRent – totalMonthlyExpenses – monthlyMortgage;
var annualCashFlow = monthlyCashFlow * 12;
// Performance Metrics
var capRate = (NOI / purchasePrice) * 100;
var cashOnCash = (annualCashFlow / downPaymentAmount) * 100;
// Display Results
document.getElementById('roiResults').style.display = 'block';
document.getElementById('resCashFlow').innerHTML = '$' + monthlyCashFlow.toFixed(2);
document.getElementById('resAnnualCashFlow').innerHTML = '$' + annualCashFlow.toFixed(2);
document.getElementById('resInvestment').innerHTML = '$' + downPaymentAmount.toLocaleString();
document.getElementById('resCapRate').innerHTML = capRate.toFixed(2) + '%';
document.getElementById('resCoC').innerHTML = cashOnCash.toFixed(2) + '%';
document.getElementById('resMortgage').innerHTML = '$' + monthlyMortgage.toFixed(2);
}