How to Use the Rental Property ROI
Buying a rental property is easy — knowing whether it's actually a good investment is the hard part. This calculator turns your purchase price, financing, rent, and expenses into the three numbers serious investors check first: monthly cash flow, cash-on-cash return, and cap rate. Run your numbers before you make an offer, not after.
Step-by-Step Guide
- 1
Enter the purchase price of the property.
- 2
Enter your down payment and closing costs.
- 3
Add any renovation or repair costs needed before renting it out.
- 4
Enter the monthly rent you expect to charge.
- 5
Add your monthly expenses — taxes, insurance, maintenance, HOA, property management.
- 6
Enter your monthly mortgage payment (principal + interest).
- 7
Set an expected vacancy rate to see realistic, not best-case, numbers.
Rental Property ROI Formula
Total Cash Invested = Down Payment + Closing Costs + Renovation Costs Monthly Cash Flow = (Rent × (1 − Vacancy %)) − Expenses − Mortgage Cash-on-Cash Return = (Annual Cash Flow ÷ Total Cash Invested) × 100 Cap Rate = (Annual NOI ÷ Purchase Price) × 100
Worked Example
Purchase price: $250,000. Down payment: $50,000. Closing costs: $5,000. Renovation: $10,000. Rent: $2,200/mo. Expenses: $600/mo. Mortgage: $1,100/mo. Vacancy: 5%. Total Cash Invested = $50,000 + $5,000 + $10,000 = $65,000 Effective Rent = $2,200 × 95% = $2,090 Monthly Cash Flow = $2,090 − $600 − $1,100 = $390 Annual Cash Flow = $390 × 12 = $4,680 Cash-on-Cash Return = $4,680 ÷ $65,000 = 7.2% Annual NOI = ($2,090 − $600) × 12 = $17,880 Cap Rate = $17,880 ÷ $250,000 = 7.2%
Understanding your result
Calculator results depend entirely on the information entered. For the most useful estimate, use current and accurate figures and include all costs that apply to your specific situation.
Frequently Asked Questions
What is a good cash-on-cash return for rental property?
Most investors target 8–12% cash-on-cash return. Anything above 8% is generally considered solid; below 5% may not justify the risk and effort of being a landlord unless you're primarily banking on appreciation.
What is a good cap rate?
Cap rates of 4–10% are typical depending on market. Higher cap rates (8%+) usually mean higher risk or lower-appreciation markets; lower cap rates (4–5%) are common in expensive, high-demand cities where price growth carries more of the return.
What's the difference between cap rate and cash-on-cash return?
Cap rate ignores financing and measures the property's return based on purchase price alone. Cash-on-cash return only looks at the actual cash you invested, so it accounts for your mortgage and leverage — it's usually the more useful number for financed deals.
Should I include vacancy rate in my rental calculations?
Yes. Even great rentals sit empty between tenants. Budgeting 5–8% vacancy (roughly 3–4 weeks a year) keeps your cash flow projection realistic instead of a best-case fantasy.
What expenses should I include in a rental property calculation?
Property taxes, insurance, routine maintenance (budget 1% of property value/year), property management fees (8–10% of rent if outsourced), HOA dues, and a reserve for capital expenditures like roofs and HVAC systems.