Rate of Return Calculator Rental Property

Rental Property Rate of Return Calculator

Include down payment, closing costs, and initial repairs.

Taxes, insurance, HOA, maintenance, management.

Total principal and interest paid per year.

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Understanding Rental Property Rate of Return

Evaluating a real estate investment requires more than just looking at the monthly rent. Professional investors use two primary metrics to determine the "Rate of Return": Cap Rate and Cash on Cash Return.

1. Capitalization Rate (Cap Rate)

The Cap Rate is used to evaluate a property regardless of the financing method (mortgage vs. cash). It compares the Net Operating Income (NOI) to the purchase price. This metric is ideal for comparing different properties in the same market side-by-side.

Formula: (Annual Net Operating Income / Purchase Price) x 100

2. Cash on Cash Return (CoC)

The Cash on Cash Return measures the actual return on the money you physically pulled out of your pocket. Since most investors use leverage (mortgages), this is often considered the most important "real-world" metric for wealth building.

Formula: (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100

Example Calculation

Imagine you buy a property for $250,000. You put $50,000 down plus $10,000 in closing costs and repairs (Total Cash Invested = $60,000).

• Monthly Rent: $2,000 ($24,000/year)
• Monthly Expenses: $500 ($6,000/year)
• Annual Mortgage Payments: $10,000

First, calculate Net Operating Income (NOI): $24,000 – $6,000 = $18,000.
Cap Rate: ($18,000 / $250,000) = 7.2%.
Annual Cash Flow: $18,000 (NOI) – $10,000 (Mortgage) = $8,000.
Cash on Cash Return: ($8,000 / $60,000) = 13.3%.

What is a Good Rate of Return?

A "good" return varies by market and risk profile:

• Primary Markets (NYC, SF): Cap rates may be low (3-5%) but appreciation potential is high.
• Secondary/Tertiary Markets: Investors often look for Cap rates between 6-10% and Cash on Cash returns above 10% to account for higher perceived risks.

function calculateRentalROI() { var purchasePrice = parseFloat(document.getElementById('purchasePrice').value); var cashInvested = parseFloat(document.getElementById('cashInvested').value); var monthlyRent = parseFloat(document.getElementById('monthlyRent').value); var monthlyExpenses = parseFloat(document.getElementById('monthlyExpenses').value); var annualMortgage = parseFloat(document.getElementById('annualMortgage').value); if (isNaN(purchasePrice) || isNaN(cashInvested) || isNaN(monthlyRent) || purchasePrice <= 0 || cashInvested <= 0) { alert("Please enter valid positive numbers for price, cash invested, and rent."); return; } // Calculations var annualGrossIncome = monthlyRent * 12; var annualOperatingExpenses = monthlyExpenses * 12; var noi = annualGrossIncome – annualOperatingExpenses; var capRate = (noi / purchasePrice) * 100; var preTaxCashFlow = noi – annualMortgage; var cocReturn = (preTaxCashFlow / cashInvested) * 100; // Display Results document.getElementById('results').style.display = "block"; document.getElementById('capRateResult').innerText = capRate.toFixed(2) + "%"; document.getElementById('cocResult').innerText = cocReturn.toFixed(2) + "%"; document.getElementById('noiResult').innerText = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('cashFlowResult').innerText = "$" + preTaxCashFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); // Scroll to results document.getElementById('results').scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }