Rental Property ROI & Cash Flow Calculator
Financial Breakdown
Understanding Rental Property ROI
Evaluating a rental property investment goes beyond just comparing the rent check to the mortgage payment. To truly understand the profitability of a real estate asset, investors rely on specific metrics like Cash on Cash Return (CoC), Net Operating Income (NOI), and Cap Rate. This calculator helps you parse these numbers effectively.
What is Cash on Cash Return?
Cash on Cash Return is perhaps the most critical metric for rental property investors. It measures the annual cash income earned on the property against the actual cash invested. Unlike total return, which might include appreciation, CoC focuses strictly on the cash flow relative to your initial capital outlay (down payment, closing costs, and rehab costs).
Formula: (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100
Net Operating Income (NOI) vs. Cash Flow
It is crucial to distinguish between NOI and Cash Flow:
- NOI (Net Operating Income): This is your total revenue minus all operating expenses (taxes, insurance, maintenance, vacancy). Importantly, NOI does not include mortgage payments. It represents the profitability of the property itself, regardless of financing.
- Cash Flow: This is what lands in your pocket. It is calculated by taking the NOI and subtracting the debt service (mortgage principal and interest).
What is a "Good" Cap Rate?
The Capitalization Rate (Cap Rate) indicates the rate of return on a real estate investment property based on the income that the property is expected to generate. It is calculated by dividing the NOI by the property's purchase price. While a "good" cap rate varies by market and risk level, most investors look for cap rates between 4% and 10%.
How to Use This Calculator
To get the most accurate results, ensure you input realistic estimates for maintenance and vacancy. A common mistake is assuming 100% occupancy or zero repairs. A standard rule of thumb is to allocate 5-10% of gross rent for maintenance and 5-8% for vacancies to account for tenant turnover.