Rental Property ROI Calculator
Estimate cash flow, Cap Rate, and Cash on Cash Return for your real estate investment.
Investment Analysis
Understanding Rental Property ROI Metrics
Investing in real estate is one of the most reliable ways to build wealth, but simply buying a property and renting it out doesn't guarantee a profit. To succeed, investors must analyze the numbers thoroughly. This Rental Property ROI Calculator helps you evaluate the profitability of a potential deal using industry-standard metrics.
What is Cash Flow?
Cash flow is the net amount of cash moving into or out of a business or investment. In real estate, it represents the money left over after all operating expenses and debt service (mortgage payments) have been paid. Positive cash flow means the property is generating income for you every month, while negative cash flow implies you are paying out of pocket to hold the asset.
Formula: Cash Flow = Rental Income – (Operating Expenses + Mortgage Payment)
Cash on Cash Return (CoC)
Cash on Cash Return measures the annual pre-tax cash flow relative to the total amount of cash invested. It is arguably the most important metric for investors using leverage (mortgages), as it tells you how hard your actual invested dollars are working.
For example, if you invest $50,000 as a down payment and the property generates $5,000 in positive cash flow annually, your Cash on Cash return is 10%. This allows you to compare real estate returns directly against other investments like stocks or bonds.
Capitalization Rate (Cap Rate)
The Cap Rate measures the rate of return on a real estate investment property based on the income that the property is expected to generate. Unlike Cash on Cash return, Cap Rate ignores debt/financing. It is calculated by dividing the Net Operating Income (NOI) by the current market value or purchase price.
Cap Rate is useful for comparing the intrinsic profitability of different properties regardless of how they are financed. A higher cap rate generally implies higher risk or a higher potential return.
Operating Expenses
Accurate expense estimation is critical for a valid calculation. Common expenses include:
- Property Taxes & Insurance: Recurring annual costs mandated by local governments and lenders.
- Vacancy Rate: An estimated percentage of time the property sits empty. 5-8% is a standard conservative estimate.
- Maintenance & CapEx: Money set aside for repairs (leaky faucets) and capital expenditures (new roof, HVAC).
- HOA Fees: Homeowners association fees which are mandatory in certain communities.
Use the calculator above to adjust these variables and see how they impact your bottom line before making an offer.