Rental Property ROI & Yield Calculator
Calculate Cap Rate, Cash-on-Cash Return, and Net Operating Income (NOI).
Understanding Your Rental Property Investment Metrics
Investing in real estate requires more than just looking at the monthly rent. To truly understand if a property is a "good deal," you must analyze the underlying financial metrics. This calculator helps you determine the profitability of a rental property by looking at four key indicators.
1. Net Operating Income (NOI)
NOI is the total income generated by a property after all operating expenses have been paid, but before mortgage payments or taxes are deducted. It tells you how much cash the property generates on its own. Operating expenses typically include property taxes, insurance, maintenance, property management fees, and utilities not paid by the tenant.
2. Capitalization Rate (Cap Rate)
The Cap Rate is a fundamental metric used to compare different real estate investments. It is calculated by dividing the NOI by the purchase price. A higher Cap Rate usually indicates a higher potential return, but it may also signal higher risk associated with the property or location.
Imagine you buy a condo for $250,000. You spend $5,000 on closing costs. Your monthly rent is $2,000 and your monthly expenses (taxes, HOA, insurance) are $600.
- Annual Income: $24,000
- Annual Expenses: $7,200
- NOI: $16,800
- Cap Rate: 6.72% ($16,800 / $250,000)
- Cash-on-Cash Return: 6.58% ($16,800 / $255,000)
3. Cash-on-Cash Return
While the Cap Rate looks at the purchase price, the Cash-on-Cash return looks at the total cash you actually put into the deal (Purchase Price + Closing Costs + Renovations). This is a more "real-world" metric for investors because it accounts for the total capital tied up in the asset.
Why These Numbers Matter
Using a rental yield calculator allows you to strip away emotion from a purchase. A property might look beautiful, but if the monthly expenses eat up 80% of the rent, your ROI will be minimal. Most long-term real estate investors look for a Cap Rate between 5% and 10%, depending on the market stability and property type.