Rental Property ROI Calculator

How to Calculate Rental Property ROI

Return on Investment (ROI) for rental properties is more complex than simple stocks or bonds. A complete ROI calculation for real estate includes four components:

1. Cash Flow: Monthly rent minus all expenses (mortgage, property taxes, insurance, HOA fees, maintenance, property management)
2. Appreciation: Increase in property value over time (typically 3-5% annually)
3. Tax Benefits: Depreciation deductions save you money on taxes (3.636% of building value annually)
4. Loan Paydown: Tenant rent pays down your mortgage, building equity

ROI Formula

ROI = (Total Annual Return / Total Investment) × 100

Where Total Annual Return = Cash Flow + Appreciation + Tax Savings + Principal Paydown

What's a Good ROI for Rental Property?

• 5-10% ROI: Average for most rental markets
• 10-15% ROI: Good investment in competitive markets
• 15%+ ROI: Excellent returns, often in emerging markets

ROI vs Cap Rate

Cap Rate (Capitalization Rate) only measures cash flow relative to property value, ignoring financing.ROI is more comprehensive, measuring your actual return on the money you invested (down payment).

Improve Your Rental ROI

• Maximize tax deductions by tracking every expense
• Reduce vacancy with quality tenants and competitive pricing
• Perform cost-effective improvements that increase rent
• Refinance when rates drop to lower mortgage payments
• Manage properties yourself or negotiate lower PM fees