Rental Property ROI Calculator
Analyze your potential real estate investment returns instantly.
How to Calculate ROI on Rental Property
Investing in real estate is one of the most proven ways to build long-term wealth, but not every property is a "good" deal. To determine if a rental property is worth your capital, you must calculate the Return on Investment (ROI). This metric allows you to compare different properties and even different asset classes (like stocks vs. real estate).
Key Metrics Explained
- Cash-on-Cash Return: This is the most important metric for rental investors. It measures the annual cash flow relative to the actual amount of cash you invested (down payment and closing costs).
- Cap Rate (Capitalization Rate): This measures the property's yield independent of financing. It is calculated by dividing the Net Operating Income (NOI) by the purchase price.
- Net Cash Flow: This is the "take-home" money left over after all bills, including the mortgage, property taxes, insurance, and maintenance reserves, have been paid.
The Formula for ROI
To calculate your Annual ROI (Cash-on-Cash), use the following formula:
Example Calculation
Suppose 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) are $2,100, your monthly cash flow is $400.
Annual Cash Flow = $400 * 12 = $4,800.
ROI = ($4,800 / $60,000) = 8% Cash-on-Cash Return.
What is a Good ROI for Rental Property?
Generally, most real estate investors aim for a Cash-on-Cash return of 8% to 12%. However, this varies by market. In high-growth "appreciation markets" (like San Francisco or New York), cash flow might be lower because the primary gain is expected from the property value increasing. In "cash flow markets" (like the Midwest), investors often look for 10-15% ROI because property values stay relatively flat.