Rental Property ROI Calculator
Investment Summary
Total Cash Invested:
$0.00
Monthly Mortgage (P&I):
$0.00
Monthly Net Cash Flow:
$0.00
Annual Cash Flow:
$0.00
Cash-on-Cash Return:
0.00%
Cap Rate:
0.00%
How to Calculate Rental Property ROI
Return on Investment (ROI) is the most critical metric for real estate investors. It measures the efficiency of an investment relative to the amount of cash you've put into the deal. In rental real estate, we primarily look at two figures: **Cap Rate** and **Cash-on-Cash Return**.
Understanding the Metrics
1. Cash-on-Cash Return: This is the ratio of annual before-tax cash flow to the total amount of cash invested. Unlike Cap Rate, this account for financing (your mortgage). It tells you exactly what yield your "out-of-pocket" money is earning.
2. Cap Rate (Capitalization Rate): This evaluates a property's yield regardless of the financing used. It is calculated by dividing the Net Operating Income (NOI) by the purchase price. It is useful for comparing the intrinsic value of different properties.
Example ROI Calculation
Imagine you buy a property for $200,000 with a 20% down payment ($40,000). You spend $10,000 on repairs and $5,000 on closing costs. Your total cash invested is $55,000.
If the property rents for $2,000/month and your total expenses (mortgage, taxes, insurance) are $1,500/month, your monthly cash flow is $500. Yearly, that's $6,000. Your Cash-on-Cash Return would be $6,000 / $55,000 = 10.9%.
Factors That Affect Your Returns
- Vacancy Rate: Always assume at least a 5% vacancy rate to be conservative.
- Maintenance: Set aside 10% of rent for ongoing repairs.
- Property Management: If you aren't managing it yourself, expect to pay 8-12% of gross rent.
- Appreciation: While not included in cash-flow ROI, property value increases build long-term wealth.