Rental Property ROI Calculator

Evaluating a Rental Property Investment

Rental property returns are measured using several metrics: cap rate (return on total value), cash-on-cash return (return on down payment), and gross yield (rent as a percentage of price). Each metric provides a different lens on the investment's performance.

Key Metrics Explained

Cap rate = Net Operating Income / Property Value. Cash-on-cash return = annual net cash flow / cash invested. Gross yield = annual rent / property price. This calculator computes all three from your inputs.

What's Not Included

This calculator does not model mortgage amortization, appreciation, tax treatment, or vacancy rates. These factors can significantly affect actual returns. Results are simplified estimates for initial comparison purposes only.

Comparing Properties Side by Side

One approach many people find useful is running the numbers on several properties at once. Two properties with similar asking prices can look very different once operating expenses are factored. It can help to The calculator functions as a quick filter — a way to narrow down which options are worth investigating further. A higher gross yield is not always the full story. Sometimes a property with modest yield but lower expenses produces a stronger cash-on-cash return. This is worth noting before drawing conclusions from any single figure.

Common Oversights Worth Knowing About

Operating expenses are easy to underestimate. Maintenance, insurance, letting agent fees, and periods without a tenant all add up. Many people focus on the rent figure and overlook how much of it actually reaches their pocket each month. It can also help to revisit these figures annually, as costs tend to rise over time. Treating the results here as a starting point for deeper research, rather than a final verdict, is generally a sensible habit to build.

Worked Example

Suppose you are evaluating a property with a purchase price of 250,000, annual rental income of 18,000, annual operating expenses of 4,500, and a down payment of 25% (62,500).

• Net Operating Income = 18,000 − 4,500 = 13,500
• Cap Rate = 13,500 / 250,000 = 5.4%
• Annual Cash Flow = 13,500 − loan interest and principal payments (estimated)
• Cash-on-Cash Return = annual net cash flow / 62,500
• Gross Yield = 18,000 / 250,000 = 7.2%

This example shows how the same property can display a 7.2% gross yield but a lower cash-on-cash return once debt service is deducted. The calculator automates these computations for any property profile you enter.

When These Metrics Matter Most

Cap rate and gross yield help identify whether a property's rental income aligns with its purchase price relative to the broader market. Cash-on-cash return illustrates the actual cash income generated from your capital outlay in year one. Together, they form a baseline for comparing investment candidates and flagging properties that warrant deeper analysis.

What the Results Do and Do Not Capture

This calculator estimates current-year cash flow and return ratios based on inputs you provide. It does not account for:

• Financing costs beyond principal and interest (origination fees, closing costs)
• Property appreciation or depreciation
• Tenant turnover, vacancy periods, or collection losses
• Tax deductions or liability treatment
• Inflation or expense growth over time
• Capital repairs or major replacements

Results are educational illustrations only, intended to highlight relationships between price, income, and expenses. They do not forecast actual portfolio performance and should not be treated as advice.