Rental Property ROI Calculator

Rental property ROI measures how well your investment property performs financially. This calculator computes three key metrics: monthly cash flow, cap rate, and cash-on-cash return.

Formulas:

Cash Flow = Monthly Rent (adjusted for vacancy) - Monthly Expenses

Cap Rate (Capitalization Rate): Cap Rate = (Annual Net Operating Income / Purchase Price) × 100

Cash-on-Cash Return: Cash-on-Cash = (Annual Cash Flow / Total Cash Invested) × 100

What each variable means:

• Purchase Price - what you paid for the property.
• Down Payment - your upfront cash investment. The calculator adds estimated closing costs of about 3% to get total cash invested.
• Monthly Rent - gross rent before deductions. A vacancy allowance comes off it, 8% by default and yours to change.
• Monthly Expenses - mortgage payment, property tax, insurance and maintenance.

When to use this calculator: Use it before buying a rental property to evaluate whether the investment makes financial sense. Compare multiple properties side by side to find the best opportunity.

Practical example: Purchase price = $250,000, down payment = $50,000, monthly rent = $1,800, mortgage = $1,100, tax = $200, insurance = $100, maintenance = $150. Effective rent (after 8% vacancy) = $1,656. Monthly cash flow = $1,656 - $1,550 = $106/month. Annual NOI = $14,472. Cap rate = 5.79%. Cash-on-cash return on $57,500 invested (down payment + closing) = 2.21%.

Benchmarks and rules of thumb:

• Cap rate above 5% is generally considered decent
• Cash-on-cash return above 8% is considered strong
• The 1% rule: monthly rent should be at least 1% of purchase price (e.g., $2,500 rent on a $250,000 property)
• Gross Rent Multiplier (GRM) = Purchase Price / Annual Rent. Lower is better, and under 15 is generally favorable.

Tips: Budget conservatively for vacancy (8–10%) and maintenance (1–2% of property value per year). Property management fees of 8–12% of rent apply if you hire a manager. Always verify actual tax and insurance rates for the specific property before purchasing.