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Rental Property ROI Calculator

Evaluate the cash flow, cap rate, and cash-on-cash return on a rental property investment.

Evaluate a rental property investment

Compute cash flow, cap rate, cash-on-cash return, and total ROI on a buy-and-hold rental.

Acquisition
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Rental Income
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Annual Operating Expenses
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Long-Term Assumptions
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"/> How to use this calculator

  1. Enter the purchase price and down payment—typically 20%–25% down for investment properties (lower than owner-occupied).
  2. Add mortgage terms—investment loan rates run 0.5%–1% higher than owner-occupied. Pick your term (30-year maximizes cash flow).
  3. Input closing costs and any rehab needed before the unit is rent-ready.
  4. Enter monthly rent from market comps, plus a vacancy rate (5% is a safe default; 8%–10% in soft markets).
  5. Add annual operating expenses—property tax, insurance, property management (typically 8%–10% of rent), maintenance (typically 8%–10% of rent), and HOA if applicable.
  6. Set appreciation—3%–4% is the long-term U.S. average; be conservative.
  7. Pick a holding period—5 years is a common first analysis. Longer horizons amplify the equity build-up effect.
  8. Click Calculate to see monthly cash flow, cap rate, cash-on-cash return, and total ROI with full operating statement.
HOW IT WORKS

How rental property ROI is calculated

Real estate investors use a small set of metrics to size up a deal quickly. The four most important are monthly cash flow, cap rate, cash-on-cash return, and total ROI over the holding period. Each measures a different dimension of the investment—and together they tell you whether a property is a cash-flow machine, an appreciation play, or a wealth trap dressed up as a deal.

Step 1: Net Operating Income (NOI)

NOI is the foundational number for all rental analysis. It represents the property's profitability before financing and taxes:

NOI = Gross Rent × (1 − Vacancy%) − Operating Expenses

Operating expenses include property tax, insurance, property management, maintenance, HOA, utilities you pay, and any other recurring costs—but not the mortgage payment. The mortgage is a financing decision, not a property expense. NOI lets you compare properties regardless of how they're financed.

Step 2: Cap Rate (unleveraged return)

Cap rate measures the property's unleveraged annual yield:

Cap Rate = NOI ÷ Purchase Price

If a property generates $20,000 in NOI on a $350,000 purchase, the cap rate is 5.7%. Cap rates of 5%–8% are typical for residential rentals in stable U.S. markets; 8%–12% in lower-cost or higher-risk areas; 3%–6% in premium appreciation markets. Cap rate is the cleanest comparison tool across properties—but it ignores leverage, which is where most real wealth is built.

Step 3: Cash-on-Cash Return (leveraged)

Cash-on-cash return measures the actual yield on the cash you invested, after the mortgage is paid:

Cash-on-Cash = (NOI − Annual Debt Service) ÷ Cash Invested

Cash invested includes the down payment, closing costs, and rehab. If NOI is $20,000, debt service is $16,800, and you invested $100,000 cash, your cash-on-cash return is 3.2%. When cap rate exceeds the mortgage rate (positive leverage), cash-on-cash exceeds the cap rate; when cap rate is below the mortgage rate (negative leverage), financing hurts returns.

Step 4: Total ROI over the holding period

Total ROI captures the full wealth-building picture by adding appreciation, principal paydown, and cumulative cash flow:

Total ROI = (Cumulative Cash Flow + Principal Paid + Appreciation − Selling Costs) ÷ Cash Invested

This is where real estate outperforms most asset classes. A 5% cap rate looks modest, but combined with 4% appreciation, 30-year amortization, and 5:1 leverage, total ROI on a 10-year hold can exceed 12% annually—far above what the cap rate alone suggested.

The 50% rule and the 1% rule

Two quick screen rules investors use before running full numbers: the 50% rule says operating expenses (excluding mortgage) will consume about 50% of gross rent; the 1% rule says monthly rent should be at least 1% of the purchase price. These are screening tools, not decision tools—always verify with actual numbers, as insurance, tax, and HOA can swing the ratio significantly.

"/> Worked example

Scenario: A $350,000 duplex purchased with 25% down ($87,500) at 7.0% for 30 years. Closing costs $8,000, rehab $5,000. Monthly rent $2,400 with 5% vacancy. Annual operating expenses: $3,800 tax, $1,400 insurance, 8% management, 8% maintenance, no HOA. Holding 5 years at 3.5% appreciation.

  • Cash invested: $87,500 + $8,000 + $5,000 = $100,500
  • Gross annual rent: $2,400 × 12 = $28,800
  • Effective gross income: $28,800 × 95% = $27,360
  • Operating expenses: $3,800 + $1,400 + $2,304 (mgmt) + $2,304 (maint) = $9,808
  • NOI: $27,360 − $9,808 = $17,552
  • Cap rate: $17,552 ÷ $350,000 = 5.0%
  • Annual debt service: $17,520 (P&I on $262,500 at 7%, 30yr)
  • Annual cash flow: $17,552 − $17,520 = $32/year (~$3/month)
  • Cash-on-cash: $32 ÷ $100,500 = 0.03%
  • 5-year appreciation: $350,000 → $415,700 = +$65,700
  • 5-year principal paid: ~$17,200
  • 5-year cash flow: $160
  • Selling costs (6%): −$24,940
  • Total profit: ~$58,120
  • Total ROI: $58,120 ÷ $100,500 = 57.8% over 5 years (~9.5% annualized)

Verdict: Despite near-zero cash flow, this is a solid appreciation-and-amortization play. The investor builds $58,000 of equity in 5 years on a $100,000 cash investment—leveraged real estate at work.

"/> Glossary

NOI
Net Operating Income—gross rent minus vacancy and operating expenses, before debt service and taxes.
Cap Rate
NOI divided by purchase price. The unleveraged annual yield of a property, used to compare deals.
Cash-on-Cash Return
Annual cash flow divided by cash invested. Measures the leveraged yield on the actual cash you put in.
Debt Service
The total annual mortgage payment (principal + interest). NOI minus debt service equals cash flow.
Positive Leverage
When the cap rate exceeds the mortgage rate, financing boosts cash-on-cash return above the cap rate.
The 1% Rule
A quick screening rule: monthly rent should be at least 1% of the purchase price. Useful as a filter, not a decision tool.
FAQ

Frequently asked questions

Quick answers to the most common questions about rental property roi calculator.

What is a good cap rate for a rental property?
Cap rates vary by market and asset class. Most investors target 5–10% for residential rentals in stable areas, with higher cap rates (8–12%) in lower-cost or higher-risk markets and lower cap rates (3–6%) in premium urban markets where appreciation is the main driver.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures unleveraged return (net operating income divided by property value) and ignores financing. Cash-on-cash return measures the actual return on the cash you invested after mortgage payments. Cash-on-cash is more relevant for leveraged investors.
How much should I budget for maintenance and vacancies?
A common rule is the 50% rule—expect operating expenses (excluding mortgage) to consume about 50% of gross rent. More conservatively, budget 1% of property value annually for maintenance, 8–10% of rent for vacancy, and 8–10% for property management if you outsource.
Should I pay cash or finance a rental property?
Financing amplifies your cash-on-cash return when cap rates exceed your mortgage rate, but it increases risk and reduces monthly cash flow. Many investors use leverage to acquire multiple properties, while others prefer the safety of free-and-clear cash flow as they approach retirement.
Does the calculator account for tax benefits like depreciation?
The core ROI calculation is pre-tax. Depreciation can shelter rental income from taxes, effectively boosting your after-tax return. Consult a tax professional to model depreciation, 1031 exchanges, and passive activity loss rules for your specific situation.

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This calculator is provided for informational and educational purposes only and does not constitute financial, legal, tax, or professional advice. Results are estimates based on the inputs you provide and standard assumptions. Actual figures may vary. Please consult a qualified professional before making financial decisions. Read our full disclaimer.