Rental Property ROI & Cash Flow Calculator
How to Calculate Rental Property ROI
Investing in real estate requires a deep understanding of the numbers. To determine if a rental property is a "good deal," investors typically look at three primary metrics: Cash Flow, Cap Rate, and Cash-on-Cash Return.
1. Net Operating Income (NOI)
NOI is the total annual income generated by the property minus all operating expenses (excluding mortgage payments). This shows the property's ability to generate profit independently of its financing.
Formula: (Monthly Rent × 12) – (Monthly Expenses × 12)
2. Capitalization Rate (Cap Rate)
The Cap Rate is used to compare different real estate investments. it is calculated by dividing the NOI by the purchase price. A "good" cap rate typically falls between 4% and 10% depending on the market location and property type.
3. Cash-on-Cash Return (CoC)
This is arguably the most important metric for investors using leverage (mortgages). It measures the annual cash flow relative to the actual cash invested (the down payment and closing costs).
Example: If you invest $60,000 for a down payment and your annual cash flow is $6,000, your Cash-on-Cash return is 10%.
Why Monthly Cash Flow Matters
Positive cash flow is the "buffer" that protects you from market downturns. It is the money left over after every single bill—including the mortgage, taxes, insurance, and maintenance reserves—has been paid. Most seasoned investors look for at least $200-$500 in net monthly cash flow per door.