Rental Property ROI Calculator

Rental Property ROI Example

For example, suppose you buy a rental property for $350,000 with a 25% down payment. You pay $7,000 in closing costs and $5,000 for initial repairs. If the property rents for $3,000 per month with a 5% vacancy rate, the calculator estimates $34,200 in effective annual rental income. With estimated operating expenses of $10,536 per year, the property produces about $23,664 in net operating income (NOI). With a $262,500 mortgage at a 6.5% interest rate for 30 years, estimated annual cash flow is about $3,754, or $313 per month. Based on these assumptions, the estimated cap rate is 6.76% and the cash-on-cash return is approximately 3.77%.

How Is Rental Property ROI Calculated?

Rental property ROI measures how effectively a property generates returns from the money invested. However, investors should look at several numbers instead of relying on one percentage. Realtolic calculates net operating income (NOI), cap rate, cash-on-cash return, cash flow, and estimated first-year ROI to give you a clearer picture of a rental property’s potential performance.

What Is a Good ROI on a Rental Property?

There is no single rental property ROI percentage that is good for every investor. A property’s location, financing, risk, expenses, condition, and investment strategy can all affect the return. Instead of judging a property by ROI alone, compare its cash flow, cap rate, cash-on-cash return, expected expenses, financing costs, and potential appreciation before making an investment decision.
Learn more in our guide to what is a good ROI on a rental property.

Cap Rate vs. Cash-on-Cash Return

Cap rate and cash-on-cash return measure rental property performance in different ways. Cap rate compares a property’s net operating income (NOI) with its purchase price or current value and does not include mortgage financing. Cash-on-cash return compares the annual pre-tax cash flow with the actual cash you invested, such as the down payment, closing costs, and initial repairs. Investors can use both metrics together to better understand a property’s operating performance and the return on their invested cash.
For a deeper explanation, read our Cap Rate vs ROI guide.

What Expenses Should You Include in Rental Property ROI?

A realistic rental property ROI calculation should include all major costs of owning and operating the property. Common expenses include property taxes, homeowners or landlord insurance, maintenance and repairs, property management fees, HOA fees, owner-paid utilities, vacancy losses, and other recurring expenses. If the property is financed, mortgage payments also affect your cash flow. Including realistic expenses helps prevent your estimated return from looking better than the property may actually perform.

How Does Vacancy Affect Rental Property ROI?

Vacancy reduces rental property income because the property is not generating rent while it is unoccupied. For example, a 5% vacancy rate means you are estimating that about 5% of your potential rental income may be lost during the year. A higher vacancy rate lowers effective rental income, NOI, cash flow, and overall returns. Using a realistic vacancy estimate can help you avoid overestimating a property’s investment performance.

Rental Property ROI Calculator FAQs

What is a good ROI for a rental property?

A good rental property ROI depends on the market, financing, property condition, expenses, and the investor’s goals. Rather than relying on one target percentage, compare ROI with cash flow, cap rate, cash-on-cash return, vacancy, and the risks associated with the property.

How do you calculate ROI on a rental property?

Rental property ROI compares the return generated by a property with the money invested. The exact calculation depends on what you include in the return and investment cost. Realtolic also shows cash flow, NOI, cap rate, and cash-on-cash return so you can evaluate the property using several important metrics.

What is the difference between ROI and cash-on-cash return?

ROI is a broader measure of an investment’s return, while cash-on-cash return focuses on the annual pre-tax cash flow compared with the actual cash invested in the property. Cash-on-cash return can be especially useful when a rental property is financed with a mortgage.

Does mortgage financing affect rental property ROI?

Yes. Mortgage financing can affect your rental property cash flow and returns because loan payments reduce the cash remaining after expenses. Financing also reduces the amount of cash you invest upfront, which can change your cash-on-cash return. Interest rate, down payment, and loan term can therefore significantly affect investment performance.

How does vacancy affect rental property returns?

Vacancy reduces the rental income a property generates. A higher vacancy rate can lower effective rental income, NOI, cash flow, cap rate, and overall returns. Using a realistic vacancy estimate helps create a more conservative and useful rental property analysis.

Should I include property appreciation when calculating rental ROI?

Property appreciation can be considered when estimating potential total returns, but future appreciation is uncertain and should not be treated as guaranteed. It is useful to evaluate a rental property based on its current income, expenses, and cash flow first, then consider potential appreciation separately.

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