How to calculate ROI on a rental property
Return on investment on a rental isn't a single number. It's a handful of related ones, and each answers a different question. A quick screen means knowing which to look at and what "good" looks like. This calculator runs all of them at once from the numbers you'd pull off a listing; here's what each one means and how it's figured.
Net operating income (NOI)
NOI is the property's income after operating expenses but before the mortgage. Start with your effective gross income (rent plus any other income, minus a vacancy allowance), then subtract everything it costs to run the place: taxes, insurance, property management, maintenance, CapEx reserves, HOA, and any utilities you cover. What's left is NOI. It deliberately excludes financing, because NOI describes the property, not your loan, which is what makes it the backbone of the other metrics.
Cap rate
Capitalization rate is annual NOI divided by the purchase price, as a percentage. A $250,000 property throwing off $15,000 of NOI has a 6% cap rate. Cap rate lets you compare very different properties on equal footing because it ignores financing; it's the return the building itself produces. What counts as a good cap rate is entirely local: a 5% cap in an expensive, appreciating metro can be a better hold than an 8% cap in a stagnant one, so judge it against comparable properties in the same market, not a universal target.
Cash-on-cash return
Cash-on-cash is the metric most buy-and-hold investors actually steer by. It's your annual pre-tax cash flow divided by the cash you actually put in: down payment, closing costs, and rehab. Where cap rate ignores your loan, cash-on-cash is built around it: leverage can lift your cash-on-cash well above the cap rate when the deal is right, or sink it when the financing is expensive. It answers the personal question cap rate can't: how hard is my money working?
The 1% rule and GRM
The 1% rule is a back-of-the-envelope filter: monthly rent should be at least 1% of the purchase price. A $200,000 house renting for $2,000 clears it; the same house at $1,400 doesn't. Treat it as a screen; plenty of good deals fail it in expensive markets, and plenty of properties that pass still lose money once real expenses are in. The gross rent multiplier (GRM), price divided by annual gross rent, is a similar quick comparison; lower is generally cheaper relative to the rent it produces.
What a good rental ROI looks like
There's no universal cutoff, but a common frame among small investors: a cap rate that's competitive for the local market, a cash-on-cash return in the high single digits or better, and monthly cash flow that stays positive after honest reserves for vacancy, maintenance, and CapEx. If a deal only works when you delete those reserves, it doesn't really work; it just hasn't sent you the bill yet. Decide your own thresholds before you shop, then hold the line.
Beyond year one
This calculator gives you a clean year-one snapshot, the fast go/no-go read. Two companion tools go deeper: the cash flow calculator projects how cash flow grows across your whole hold as rents rise against a fixed mortgage, and the depreciation calculator estimates the yearly tax deduction that shelters much of that income. Together they cover the full picture: screen here, then project and plan the tax with the other two.
Frequently asked
Is the Rental ROI Calculator really free? Yes. It runs entirely in your browser with no signup required. It estimates cap rate, monthly cash flow, cash-on-cash return, NOI, and the 1% rule, and gives a clear Buy / Consider / Pass read.
Does ROI include appreciation? Not in these figures. Cap rate, cash-on-cash, and cash flow are all based on income and price: the returns you can measure today. Appreciation and loan paydown are real returns stacked on top, but they're projections, so a conservative buyer underwrites to the cash numbers first.
What expenses do people forget? Vacancy, maintenance, and CapEx reserves, the three that turn a great-looking deal into a realistic one. The calculator includes all three by default, which is why its numbers are usually lower, and more honest, than a quick mental estimate.