ROI Calculator · Practical guide
How to Calculate ROI on a Rental Property
Add up every dollar that went in and every dollar that came out — then let the ROI formula settle whether the deal was worth it.
At a glance
The Basic Formula
Rental ROI uses the same core formula as any investment: (Final Value − Initial Investment) ÷ Initial Investment × 100%. The work is in defining the two numbers honestly. Your initial investment is the total cash in: down payment or purchase price, closing costs, and rehab. Your final value is the net sale proceeds plus all net rental income collected along the way.
Interactive tool
ROI Calculator
Enter your own values, then compare the result with the examples below.
ROI Analysis
A Worked Example
Suppose you bought a rental for $250,000 all-in (price, closing, and repairs) and sold six years later, with net sale proceeds plus accumulated rent after expenses totaling $310,000. Total ROI = $60,000 ÷ $250,000 = 24%, a 1.24x multiplier. Annualized over six years: (1.24)^(1/6) − 1 ≈ 3.65% per year — a sobering reminder that appreciation alone often underperforms the stock market, which is why rent cash flow matters so much.
Cash-on-Cash: The Leveraged View
| Measure | What Goes In | What It Tells You |
|---|---|---|
| Total ROI | Full purchase cost | Overall return on the whole deal |
| Cash-on-cash | Only your actual cash (down payment + costs) | Return on your out-of-pocket money |
| Cap rate | Net operating income ÷ price | Property yield ignoring financing |
With a mortgage, divide annual pre-tax cash flow by your actual cash invested. Putting $60,000 down on that same property and clearing $4,800 a year after all expenses and debt service is an 8% cash-on-cash return — before counting appreciation or loan paydown.
Costs People Forget
ROI on rentals gets inflated when investors omit real expenses: vacancies (budget 5-8% of rent), maintenance and capital items like roofs and HVAC (1-2% of property value per year), property management (8-10% of rent), insurance, property taxes, and selling costs around 6-8% of the sale price. Enter your true all-in cost and true net proceeds in the calculator above for a number you can trust.
Frequently Asked Questions
What is a good ROI for a rental property?
Many investors target 8-12% total annual returns including cash flow and appreciation, or at least 6-8% cash-on-cash. Whether that beats alternatives depends on your market and how much hands-on work the property demands.
How is cap rate different from ROI?
Cap rate is net operating income divided by property price, ignoring loans and your personal cash position. ROI measures your actual return including financing, appreciation, and every cost — the fuller picture.
Should I count mortgage principal paydown as return?
Yes, in a full analysis. Tenants paying down your loan builds equity you recover at sale, so include it either in the final value or as part of your annual return calculation.
Do repairs and renovations go in initial or ongoing costs?
Upfront rehab before renting belongs in your initial investment. Ongoing maintenance and repairs reduce your net rental income. Either way they must appear somewhere, or the ROI is overstated.