Rental Property ROI Calculator
Analyze your potential real estate investment returns with precision.
Understanding Your Rental Property ROI
Investing in real estate is one of the most proven ways to build long-term wealth. However, the difference between a profitable investment and a financial burden lies in the math. Our Rental Property ROI Calculator helps investors determine if a property will generate positive cash flow or if the expenses will outweigh the income.
Key Metrics Explained
Cap Rate (Capitalization Rate): This represents the natural rate of return for a single year without considering financing. It is calculated by taking the Net Operating Income (NOI) and dividing it by the purchase price. A "good" cap rate varies by market but typically ranges from 4% to 10%.
Cash-on-Cash Return: This is the most important metric for investors using leverage (mortgages). It measures the annual cash flow relative to the actual amount of cash you invested (down payment and closing costs). If you put $60,000 down and make $6,000 in annual profit, your cash-on-cash return is 10%.
Net Operating Income (NOI): This is your total annual rental income minus all operating expenses (taxes, insurance, maintenance, property management). Crucially, NOI does not include your mortgage payment.
Real-World Example Analysis
Imagine you buy a property for $300,000 with 20% down ($60,000). Your monthly rent is $2,500. After paying the mortgage ($1,517), taxes ($300), insurance ($100), and setting aside 10% for maintenance ($250), your monthly cash flow is $333.
While $333/month might seem modest, your annual cash flow is $3,996. On your $60,000 investment, that is a 6.66% Cash-on-Cash Return—not including the benefit of property appreciation or loan paydown!
Why You Must Include Maintenance and Vacancy
New investors often make the mistake of only subtracting the mortgage from the rent. To get a realistic ROI, you must account for "hidden" costs. We recommend setting aside at least 5% for vacancy (time when the unit is empty between tenants) and 5% for maintenance (repairs like water heaters or roof leaks). This 10% buffer ensures your investment stays solvent during tough months.