Rental Property ROI Calculator
Calculate cap rate, cash-on-cash return for real estate investments.
This rental property ROI calculator estimates cap rate, cash-on-cash return, and monthly cash flow for a rental investment, using purchase price, financing terms, rental income, and operating expenses. It gives a quick way to compare rental properties against each other or against other investment options.
Enter the purchase price, down payment, rent, and expenses, and the calculator returns your key rental return metrics.
Worked Calculation Examples
| Scenario | Result | Calculation Step |
|---|---|---|
| $250,000 property, $2,000/month rent - Cap Rate | Cap rate ≈ 6.27% | Annual rent = $2,000 × 12 = $24,000. NOI = $24,000 − $8,320 (tax, insurance, maintenance, management, vacancy) = $15,680. Cap rate = $15,680 ÷ $250,000 × 100 ≈ 6.27%. |
| Same property financed with 20% down - Cash-on-Cash Return | Cash-on-cash ≈ 0.93% | Total cash invested = $50,000 + $5,000 = $55,000. Annual cash flow = NOI $15,680 − mortgage payments $15,169.60 = $510.40. Cash-on-cash return = $510.40 ÷ $55,000 × 100 ≈ 0.93% - a reminder that a healthy cap rate can still produce thin cash flow once financing costs are added. |
Cap Rate vs. Cash-on-Cash Return
Cap rate divides net operating income by the property's total purchase price, ignoring financing - it's useful for comparing properties as if bought in cash. Cash-on-cash return instead divides annual cash flow by the actual cash you invested (down payment plus closing costs), which reflects the real return on a leveraged purchase and is usually the more relevant number for financed investors. Cap rate as a real estate metric became standardized in commercial property valuation during the mid-20th century specifically because it strips out financing structure, letting an all-cash buyer and a heavily leveraged buyer compare the same property on equal footing before deciding how, or whether, to finance the purchase.
What Counts as an Operating Expense
Property taxes, insurance, maintenance, property management fees, and a vacancy allowance all reduce net operating income and should be included before calculating returns. Mortgage principal and interest are excluded from cap rate (since it's a pre-financing metric) but are included when calculating cash flow and cash-on-cash return.
Common Mistakes in Rental ROI Estimates
The most damaging mistake is omitting a vacancy allowance entirely, assuming the unit is rented 100% of the time - even a well-managed rental typically sees some vacancy between tenants. A second is forgetting maintenance and capital expenditure reserves (a new roof, HVAC replacement) because they don't occur every month, which understates true operating costs. A third is comparing a leveraged property's cash-on-cash return directly against an all-cash cap rate from a different listing - the two metrics aren't measuring the same thing and shouldn't be compared head to head.
Sources & References
Cap rate and cash-on-cash return are standard commercial and residential real estate investment metrics with no single governing standards body, but their definitions here follow the conventions used by real estate investment associations (such as NAR) and commercial appraisal practice. Actual returns depend on local property tax rates, insurance costs, and financing terms, which vary by market and should be sourced from local providers rather than assumed.
How to Use the Rental Property ROI Calculator
- Open the Rental Property ROI Calculator and enter the values requested in the input fields.
- Check the units, percentages, dates, or time periods before reading the answer.
- Review the instant result and adjust any value to compare another scenario.
- Use the formula, example, and FAQs below to understand how the rental property roi calculator works.
Frequently Asked Questions
What is a good cap rate for a rental property?
Cap rates typically range from 4% to 10% depending on market and property type - higher cap rates often signal higher risk or a less competitive market, while lower cap rates are common in high-demand areas.
How do I calculate cash-on-cash return?
Divide the annual pre-tax cash flow (rental income minus all expenses and mortgage payments) by the total cash invested (down payment plus closing costs), then multiply by 100 for a percentage.
What's the difference between cap rate and ROI?
Cap rate ignores financing and measures return based on the full purchase price. ROI (and cash-on-cash return specifically) accounts for financing and measures return only on the cash you actually put in, which is usually a higher percentage for a leveraged purchase.
How do I use this rental property roi calculator?
Enter the known values, review the units or settings, and the calculator updates the result instantly. The formula and example on this page show how the answer is produced.
What does the Rental Property ROI Calculator calculate?
Calculate cap rate, cash-on-cash return for real estate investments. It is designed for fast browser-based calculations without sign-up, downloads, or manual spreadsheet setup.
What formula does this rental property roi use?
The formula is: Cap Rate = NOI ÷ Purchase Price × 100; Cash-on-Cash Return = Annual Cash Flow ÷ Total Cash Invested × 100. NOI (Net Operating Income) is annual rental income minus operating expenses (property tax, insurance, maintenance, management fees, and a vacancy allowance) - but excluding mortgage payments. Cap Rate divides NOI by the full purchase price, as if the property were bought in cash. Cash-on-Cash Return instead uses Annual Cash Flow (NOI minus annual mortgage payments) divided by Total Cash Invested (down payment plus closing costs), which reflects the actual return on the cash a financed buyer put in, rather than on the full property value.
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Last updated: September 29, 2026.