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Free TrialUse this free rental property ROI calculator to see whether a rental pays for itself. Enter the price, loan, rent and monthly costs to get monthly cash flow, cash-on-cash return, net operating income (NOI) and cap rate.
How to calculate ROI on a rental property
When landlords talk about the return on a rental, they usually mean one of two numbers. Cash-on-cash return tells you what the money you put in earns each year after the mortgage is paid. Cap rate tells you what the property earns on its price, as if you had paid cash. This calculator works out both, along with the monthly cash flow and NOI they come from.
Every figure comes from rent, before income tax. It leaves out any rise in the property's value and the loan principal you pay down. Both add to your equity over time, but neither is cash in hand until you sell or refinance.
Monthly cash flow
What's left of a month's rent after every bill, including the mortgage.
Vacancy loss is the rent times your vacancy rate, which covers the weeks a unit sits empty between tenants. Operating expenses are property tax, insurance, maintenance, the property management fee, utilities you pay and HOA dues. The management fee is a percentage of the rent collected, so a manager isn't paid for the months a unit sits empty. Other income is anything beyond rent, such as laundry, parking or pet fees.
Net operating income (NOI)
A year of income after vacancy, minus a year of operating expenses.
NOI leaves out the mortgage. It describes the property itself, so two buyers with different loans get the same NOI from the same building.
Cap rate
Because cap rate ignores financing, it is the fairest way to compare one property with another. For a quick comparison on rent alone, see the rental yield calculator.
Cash-on-cash return
The bottom of the formula is every dollar you paid to buy the property and get it ready to rent. If you bought with no money down and no closing costs, there is nothing to divide by, and the calculator shows N/A.
Mortgage payment
The loan is the purchase price minus the down payment, r is the yearly interest rate divided by 12, and n is the number of monthly payments (years × 12). This is principal and interest only; enter property tax and insurance in their own fields. If you pay the whole price in cash, there is no mortgage and the rate and term are ignored.
Example: a $250,000 single-family rental
A landlord buys a $250,000 house with $50,000 down and $7,500 of closing costs and repairs, and borrows the other $200,000 at 7% for 30 years. The house rents for $2,200 a month with a 5% vacancy rate and brings in $50 a month in pet rent. Property tax is $250 a month, insurance $100 and maintenance $200, and a property manager charges 8% of the rent collected.
| Line | Monthly |
|---|---|
| Rent | $2,200.00 |
| Vacancy loss (5% of rent) | -$110.00 |
| Other income | $50.00 |
| Total income after vacancy | $2,140.00 |
| Property management (8% of $2,090 collected) | -$167.20 |
| Other operating expenses ($250 + $100 + $200) | -$550.00 |
| Mortgage payment on $200,000 | -$1,330.60 |
| Monthly cash flow | $92.20 |
| Result | Math | Annual |
|---|---|---|
| Net operating income | ($2,140 − $717.20) × 12 | $17,073.60 |
| Cap rate | $17,073.60 ÷ $250,000 | 6.83% |
| Cash-on-cash return | $92.20 × 12 ÷ ($50,000 + $7,500) | 1.92% |
The cap rate is reasonable, but the cash-on-cash return is low because at 7% the loan payments take most of the NOI. The manager's fee matters too: managing the house yourself would raise the cash flow to $259.40 and the cash-on-cash return to 5.41%, but you'd be the one taking the calls. Leave out the $7,500 of closing costs and repairs and the return would read 2.21%, not 1.92%, which is why they belong in the cash you put in.
What is a good ROI on a rental property?
There is no single standard, but these ranges are common starting points:
- Monthly cash flow: positive, after you've set money aside for repairs and vacancies. A deal that only breaks even leaves nothing for a bad month.
- Cash-on-cash return: many investors aim for 8% to 12%. Some accept less in markets where they expect values to rise, which this calculator does not count.
- Cap rate: often around 4% to 10% for rentals. Expensive, high-demand cities sit at the low end and smaller markets at the high end. A higher cap rate usually comes with more risk, such as older buildings or weaker demand.
Also compare the return with what the same cash could earn with less work and risk, such as a savings account or an index fund.
Quick checks: the 1% rule and the 50% rule
Two rough screens help you decide whether a listing is worth running through the calculator. The 1% rule says monthly rent should be at least 1% of the purchase price; the example house needs $2,500 and rents for $2,200, so it falls short. The 50% rule says operating expenses and vacancy tend to take about half the rent over the years, once management, turnover and big replacements such as roofs are counted. The example's $827.20 of expenses and vacancy is 38% of rent, so if your own numbers come in well under 50%, check that nothing is missing. Neither rule replaces real numbers, and many markets never meet the 1% rule.
How to use your results
- Compare properties by cap rate, then compare loan offers by cash-on-cash return and cash flow.
- Test the loan. Change the down payment or interest rate to see how much of the NOI goes to the lender.
- Stress-test the deal. Raise the vacancy rate or the maintenance budget. If a small change turns cash flow negative, the deal has little room for error. The vacancy rate calculator and maintenance cost calculator help you pick realistic figures.
- Plan for taxes. These results are before income tax. Rental income is taxable, but you can deduct operating expenses and mortgage interest, and depreciate the building (not the land) over 27.5 years. IRS Publication 527, Residential Rental Property, explains the rules, and the rental income tax calculator estimates what you might owe.
Once you own the rental, compare the estimate with what actually happens. Recording rent and expenses against each property, as RentPost does, shows your real cash flow and keeps the records ready for tax time.
Frequently asked questions
How do you calculate ROI on a rental property?
Most landlords use cash-on-cash return: a year of cash flow after the mortgage, divided by the cash you put in (down payment, closing costs and upfront repairs). The other common measure is cap rate, which divides net operating income by the purchase price and ignores the loan.
What is a good ROI on a rental property?
Many investors aim for a cash-on-cash return of 8% to 12% and positive monthly cash flow after setting money aside for repairs. Cap rates on rentals commonly run from about 4% in expensive cities to 10% in smaller markets. What counts as good depends on the market, the risk and what your money could earn elsewhere.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures the property as if you paid cash, so you can compare deals no matter how they are financed. Cash-on-cash return measures what your own money earns after the loan payments. A loan raises cash-on-cash return only when the cap rate is higher than a year of loan payments as a share of the loan. Because the payments include principal, that share is about 8% for a 30-year loan at 7%, not 7%. Otherwise the loan lowers the return.
Does net operating income include the mortgage payment?
No. Net operating income (NOI) is the rent you collect plus other income, minus operating costs such as property tax, insurance, maintenance, property management, utilities you pay and HOA fees. The mortgage comes out after NOI, which is what leaves your cash flow.
How much do property managers charge?
Most property managers charge 8% to 12% of the rent they collect each month. Many also charge a leasing fee when they place a new tenant, often half to a full month's rent. Enter the monthly percentage here; if you manage the property yourself, leave it blank.
What vacancy rate should I use?
Use your own history if you already rent nearby. Without it, 5% to 8% is a common starting point; 5% is about 18 days empty a year. Our rental vacancy rate calculator works out the rate from your own records.
Should closing costs count in cash-on-cash return?
Yes. Cash invested is every dollar you paid to buy the property and get it ready to rent: the down payment, closing costs and upfront repairs. Leaving closing costs out makes the return look better than it is.
Does this calculator include appreciation?
No. It shows the return from rent: monthly cash flow, cash-on-cash return, NOI and cap rate. A rise in the property's value and the loan principal you pay down add to your equity, but they are not cash in hand until you sell or refinance, so they are left out.
