Rental Property ROI Calculator
Real estate investing is one of the most reliable ways to build wealth, but it requires precise mathematical analysis to ensure a property is a viable asset. This Rental Property ROI Calculator is designed to help investors evaluate the potential profitability of a residential rental property.
By inputting specific financial details—from purchase price and financing terms to operating expenses and rental income—you can instantly calculate critical metrics like Cash Flow, Net Operating Income (NOI), Cap Rate, and Cash-on-Cash Return. Use this tool to analyze deals before you make an offer.
Property & Loan Details
Income & Expenses
Financial Analysis
Annual Performance Metrics
Understanding Rental Property ROI Metrics
Analyzing a rental property involves more than just comparing the rent check to the mortgage payment. To truly understand the investment potential, you must look at specific KPIs (Key Performance Indicators). Our calculator breaks these down for you.
1. Net Operating Income (NOI)
NOI is the foundation of real estate valuation. It represents the total income the property generates after all operating expenses are paid, but before the mortgage is paid.
Formula: NOI = Gross Operating Income - Operating Expenses
Operating expenses include taxes, insurance, maintenance, property management, and vacancy reserves. They do NOT include mortgage principal and interest.
2. Cap Rate (Capitalization Rate)
The Cap Rate measures the natural rate of return of the property assuming you bought it with all cash. It allows you to compare properties of different prices and locations on a level playing field.
Formula: Cap Rate = (Annual NOI / Purchase Price) * 100
Generally, a higher Cap Rate implies a better return but may come with higher risk (e.g., a property in a declining neighborhood). A Cap Rate between 4% and 10% is typical depending on the market.
3. Cash on Cash Return
This is arguably the most important metric for leveraged investors. It measures the cash income earned on the cash actually invested (your down payment and closing costs).
Formula: Cash on Cash = (Annual Cash Flow / Total Cash Invested) * 100
While the stock market might average 7-8%, real estate investors often aim for Cash on Cash returns of 8-12% or higher, in addition to the benefits of appreciation and loan paydown.
4. Monthly Cash Flow
Cash flow is the profit left over after all bills are paid, including the mortgage. Positive cash flow ensures the property pays for itself and provides passive income. Negative cash flow means you are feeding the investment every month from your own pocket.
How to Use This Calculator
- Purchase Price: The negotiated price of the home.
- Down Payment: The percentage of the price you are paying upfront. For investment properties, this is typically 20-25%.
- Interest Rate: Your mortgage rate. Investment property rates are usually 0.5% – 0.75% higher than primary residence rates.
- Vacancy Rate: The percentage of time the property sits empty. 5% (about 18 days a year) is a standard conservative estimate.
- Maintenance: Always budget for repairs. 1% of the property value per year is a common rule of thumb.