Rental Property ROI Calculator
Monthly Mortgage (P&I):
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Total Monthly Expenses:
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Monthly Cash Flow:
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Cash-on-Cash Return:
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Cap Rate:
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How to Calculate Rental Property ROI
Investing in real estate requires more than just finding a nice house; it requires a cold, hard look at the numbers. Return on Investment (ROI) is the most critical metric for any landlord or real estate investor to understand before committing capital.
The Formula: ROI = (Annual Net Gain / Total Initial Investment) x 100
Key Metrics Explained
1. Cash-on-Cash Return: This measures the annual cash flow relative to the actual cash you invested (down payment and closing costs). It is often considered the most important metric for "lifestyle" investors seeking monthly income.
2. Cap Rate (Capitalization Rate): This is the ratio of Net Operating Income (NOI) to the property purchase price. It ignores financing and shows how the property performs as an asset on its own.
Example Calculation
Imagine you buy a property for $300,000 with a 20% down payment ($60,000). If your monthly rent is $2,500 and your total expenses (mortgage, taxes, insurance, and maintenance) come to $2,100, your monthly cash flow is $400.
Annually, that is $4,800. Your Cash-on-Cash return would be $4,800 / $60,000 = 8%. This means for every dollar you put down, you are getting 8 cents back in cash flow every year.
Factors That Affect Your ROI
- Vacancy Rate: Even the best properties sit empty occasionally. Always factor in at least 5% for vacancy.
- Maintenance and CapEx: Roofs leak and water heaters break. Setting aside 10% of gross rent for repairs is a standard "safe" practice.
- Property Management: If you don't manage the unit yourself, expect to pay 8-12% of gross rent to a management company.