Real Estate Investment ROI Calculator

Enter purchase price, rent, and expenses — see cap rate, cash-on-cash return, and projected 10-year total ROI including appreciation and equity build.

How Real Estate Investment Returns Are Calculated

  • Cap rate (capitalization rate) measures a property's income potential independent of financing: Net Operating Income ÷ Purchase Price. A higher cap rate signals more income relative to cost — but often more risk.
  • Cash-on-cash return measures the annual pre-tax cash flow as a percentage of your actual cash invested (down payment + closing costs). This is the most useful metric for comparing leveraged investments.
  • Total ROI adds appreciation to the picture. Even a property with modest cash flow can produce strong overall returns if the market appreciates — and vice versa. Both metrics matter for a complete analysis.

Calculation details

Methodology

The calculator subtracts vacancy from gross rental income, subtracts entered operating expenses to estimate NOI, and subtracts annual mortgage payments for cash flow. Cap rate is NOI divided by purchase price; cash-on-cash return is annual cash flow divided by initial cash invested; DSCR is NOI divided by debt service. The projection amortizes the loan and models rent, expense, and property-value growth.

Assumptions and limitations

  • Results are nominal and pre-tax; depreciation, income tax, capital-gains tax, and financing changes are excluded.
  • Vacancy and growth rates remain constant, while operating expenses grow at the model's fixed rate.
  • Capital expenditures and reserves are included only if the user enters them as expenses.
  • Future appreciation, rent, vacancy, and sale proceeds are uncertain.
  • The tool is for screening scenarios, not investment, appraisal, lending, legal, or tax advice.

Worked example: rental property cash flow

  • $350,000 purchase with 25% down
  • 2.5% closing costs and $262,500 loan
  • 7.5% mortgage for 30 years
  • $2,800 monthly rent, 8% vacancy, and $890 monthly operating expenses

Modeled NOI is $20,232 per year and annual debt service is about $22,025. Cash flow is about −$1,793 per year, cap rate is 5.78%, cash-on-cash return is −1.86%, and DSCR is 0.92x.

Under these assumptions, property income does not fully cover modeled debt service. Returns can change materially with financing, repairs, vacancy, taxes, and sale price.

Official sources

Frequently Asked Questions

What is a good cap rate for a rental property?

A cap rate of 5%–8% is generally considered acceptable for residential rental properties, though it varies significantly by market. High-demand urban markets (NYC, SF, LA) often have cap rates of 3%–5% — lower yield but more appreciation potential. Midwest and Sun Belt markets may offer 7%–10% cap rates with lower appreciation. Cap rate alone doesn't determine a good investment — you also need to consider your financing cost, local vacancy rates, and appreciation outlook.

How do you calculate cash-on-cash return on a rental property?

Cash-on-cash return = Annual pre-tax cash flow ÷ Total cash invested. For example: if you put $60,000 down (including closing costs) and the property generates $6,000/year in net cash flow after mortgage, taxes, insurance, and maintenance, your cash-on-cash return is 10%. This metric is useful because it measures actual return on your invested capital, accounting for leverage.

Is real estate a good investment in 2025?

Real estate can be a strong investment for cash flow, appreciation, and tax benefits — but it's not universally good. Key factors: your market's rent-to-price ratio, local vacancy rates, your financing cost vs. cap rate (positive or negative leverage), and your ability to manage the property. At current interest rates, many markets have negative leverage — the cap rate is lower than the mortgage rate — making cash flow negative unless you put a large down payment.

How to use this estimate

This calculator is an educational planning tool. Results are based on the figures and assumptions entered by the reader, use standard mortgage mathematics, and are not a loan offer, approval, or substitute for a lender's Loan Estimate. Taxes, insurance, fees, mortgage insurance, and available rates vary by borrower, property, lender, and location.

Review the assumptions, compare more than one scenario, and confirm the final numbers with a licensed mortgage professional before making a financial commitment.