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color: #333;
max-width: 800px;
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padding: 20px;
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How to Calculate Rental Property ROI
Investing in real estate is one of the most reliable ways to build wealth, but simply buying a property doesn't guarantee a profit. To be a successful investor, you must understand the numbers behind the deal. A Rental Property ROI (Return on Investment) Calculator is an essential tool for evaluating whether a potential property will generate positive cash flow or become a financial burden.
This calculator breaks down the complexity of real estate mathematics into actionable metrics: Cash Flow, Cap Rate, and Cash on Cash Return. By inputting your purchase price, financing details, and operating expenses, you can immediately see the financial health of an investment.
Understanding the Key Metrics
1. Monthly Cash Flow
Cash flow is the profit you bring in each month after all expenses are paid. It is calculated as:
Cash Flow = Total Rental Income – (Mortgage Payment + Operating Expenses)
Positive cash flow means the property pays for itself and provides you with income. Negative cash flow ("being alligator") means you are losing money every month to hold the property. Most investors aim for at least $100-$300 per door in positive monthly cash flow.
2. Cap Rate (Capitalization Rate)
The Cap Rate measures the natural rate of return on the property independent of debt. It helps you compare the profitability of one property against another, assuming you paid all cash.
Cap Rate = (Net Operating Income / Purchase Price) * 100
Net Operating Income (NOI) is your annual revenue minus operating expenses (taxes, insurance, maintenance, management) but excluding mortgage payments. A higher Cap Rate generally indicates a better return, though it often comes with higher risk (e.g., properties in lower-income areas often have higher Cap Rates).
3. Cash on Cash Return (CoC)
While Cap Rate looks at the property, Cash on Cash Return looks at your money. It measures the return on the actual cash you invested (down payment + closing costs).
CoC Return = (Annual Cash Flow / Total Cash Invested) * 100
This is arguably the most important metric for leverage investors. If you put $50,000 down on a house and it generates $5,000 in annual cash flow, your Cash on Cash return is 10%. This allows you to compare real estate returns directly against stocks, bonds, or other investment vehicles.
Common Operating Expenses to Consider
When using the calculator, ensure your "Monthly Operating Expenses" field includes:
- Property Taxes: Usually around 1-2% of the property value annually.
- Insurance: Landlord policies differ from standard homeowner policies.
- Maintenance & Repairs: A good rule of thumb is to budget 5-10% of rent for repairs.
- Vacancy Rate: Properties won't be rented 365 days a year. Budgeting 5-8% for vacancy is prudent.
- Property Management: If you hire a manager, they typically charge 8-10% of the monthly rent.
- HOA Fees: Applicable for condos or properties in planned communities.
Is a Rental Property a Good Investment?
There is no "one size fits all" answer, but general benchmarks exist. Many investors look for:
- Cash Flow: Greater than $200/month per unit.
- Cash on Cash Return: 8% to 12% or higher.
- Cap Rate: 5% to 10%, depending on the market area.
Use this calculator to tweak your numbers. Try negotiating a lower purchase price or shopping for a better interest rate to see how these changes impact your final ROI.
function calculateROI() {
// 1. Get Input Values
var purchasePrice = parseFloat(document.getElementById('purchasePrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var monthlyRent = parseFloat(document.getElementById('monthlyRent').value);
var monthlyOpEx = parseFloat(document.getElementById('monthlyOpEx').value);
// 2. Validation
if (isNaN(purchasePrice) || isNaN(downPayment) || isNaN(interestRate) ||
isNaN(loanTerm) || isNaN(monthlyRent) || isNaN(monthlyOpEx)) {
alert("Please fill in all fields with valid numbers.");
return;
}
if (downPayment > purchasePrice) {
alert("Down payment cannot be greater than purchase price.");
return;
}
// 3. Perform Calculations
// Loan Calculation
var loanAmount = purchasePrice – downPayment;
var monthlyInterestRate = (interestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
var monthlyMortgage = 0;
// Handle zero interest or zero loan scenarios
if (loanAmount 0) {
capRate = (annualNOI / purchasePrice) * 100;
}
var cashOnCash = 0;
// Assuming Total Cash Invested = Down Payment for this calculator logic
// (In advanced versions, closing costs would be added here)
if (downPayment > 0) {
cashOnCash = (annualCashFlow / downPayment) * 100;
} else if (downPayment === 0 && purchasePrice > 0) {
// If 0 down (100% financing), CoC is technically infinite if cashflow is positive,
// or undefined. We will handle gracefully or show Infinite.
cashOnCash = 0; // Keeping it simple for the script standard logic
}
// 4. Update UI
// Helper for currency formatting
var fmtMoney = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD' });
var fmtPercent = new Intl.NumberFormat('en-US', { style: 'percent', minimumFractionDigits: 2, maximumFractionDigits: 2 });
document.getElementById('displayMortgage').innerText = fmtMoney.format(monthlyMortgage);
document.getElementById('displayTotalExp').innerText = fmtMoney.format(totalMonthlyExpenses);
document.getElementById('displayNOI').innerText = fmtMoney.format(annualNOI);
var cashFlowEl = document.getElementById('displayCashFlow');
cashFlowEl.innerText = fmtMoney.format(monthlyCashFlow);
// Color coding for cash flow
if (monthlyCashFlow >= 0) {
cashFlowEl.style.color = "#2e7d32"; // Green
} else {
cashFlowEl.style.color = "#c62828"; // Red
}
document.getElementById('displayCapRate').innerText = fmtPercent.format(capRate / 100);
document.getElementById('displayCoC').innerText = fmtPercent.format(cashOnCash / 100);
// Show the results section
document.getElementById('resultsSection').style.display = 'block';
}