Rental Property ROI Calculator
Analyze your real estate investment potential with precision.
Understanding Your Rental Property ROI
Investing in real estate is one of the most proven ways to build long-term wealth. However, the difference between a profitable asset and a "money pit" lies in the math. This Rental Property ROI Calculator helps you strip away the emotion and look at the raw financial performance of a property.
Key Metrics Explained
1. Cap Rate (Capitalization Rate): This is the ratio of Net Operating Income (NOI) to the purchase price. It represents the return on investment if you paid for the property entirely in cash. It is useful for comparing different properties in the same market.
2. Cash on Cash Return (CoC): This is arguably the most important metric for investors using financing. It measures the annual cash flow relative to the actual cash you invested (down payment). If you put $60,000 down and get $6,000 back in profit per year, your CoC is 10%.
3. Monthly Cash Flow: This is what stays in your pocket after every single bill—including the mortgage, taxes, insurance, and maintenance reserves—is paid.
Example Calculation
Imagine you buy a property for $300,000 with 20% down ($60,000). At a 6.5% interest rate, your mortgage might be around $1,517. If the rent is $2,500 and you spend $500/month on expenses (taxes, insurance), your monthly cash flow is $483. This results in a Cash-on-Cash return of roughly 9.6%.
How to Improve Your ROI
- Reduce Vacancy: Even one month of vacancy can destroy your annual profits. Screen tenants thoroughly to ensure long-term occupancy.
- Value-Add: Small cosmetic upgrades (paint, new hardware, lighting) can often justify a significant rent increase.
- Refinance: If interest rates drop, refinancing can lower your monthly mortgage payment, instantly boosting your monthly cash flow.