Rental Property ROI Calculator
Investment Analysis
Understanding Rental Property Investment Analysis
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 profit. To ensure a rental property is a sound investment, you must analyze the numbers. This specific Rental Property ROI Calculator helps you determine the viability of a potential deal by calculating key metrics like Cash Flow and Cash-on-Cash Return (CoC).
Key Metrics Explained
1. Cash Flow
Cash flow is the net amount of cash moving in and out of a business. In rental real estate, it is calculated as your total income minus your total expenses. A positive cash flow means the property pays for itself and puts money in your pocket every month. Our calculator derives this by taking Gross Rent and subtracting all operating expenses (taxes, insurance, HOA, management fees, maintenance) and debt service (mortgage principal and interest).
2. Cash-on-Cash Return (CoC ROI)
While cash flow tells you the dollar amount you earn, the Cash-on-Cash Return tells you how hard your money is working. It measures the annual pre-tax cash flow divided by the total cash invested.
- Formula: (Annual Cash Flow / Total Cash Invested) x 100
- Example: If you invest $50,000 cash (down payment + closing costs) and the property generates $5,000 in positive cash flow per year, your CoC return is 10%.
3. Net Operating Income (NOI)
NOI is a calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses. Notably, NOI represents the income before mortgage payments and taxes are deducted. It is crucial for calculating the Cap Rate.
How to Use This Calculator
To get the most accurate results, ensure you input realistic numbers based on the local market:
- Vacancy Rate: No property is occupied 100% of the time. A standard conservative estimate is 5% to 8%.
- Maintenance & CapEx: Things break. Budgeting 5-10% of gross rent for repairs (Maintenance) and major replacements like roofs or HVAC (Capital Expenditures) prevents surprise losses.
- Management Fee: Even if you self-manage, it is wise to calculate a 10% management fee. This ensures the "deal" works even if you hire a professional manager later.
What is a Good ROI?
A "good" return varies by investor and market strategy. Generally, a Cash-on-Cash return of 8% to 12% is considered solid for long-term buy-and-hold investments. However, in high-appreciation markets, investors might accept lower cash flow (4-6%), while in lower-cost markets, they might demand 15% or higher to offset risk.