What is ROI and how do you calculate it?

ROI (Return on Investment) measures how much profit you earn relative to your investment cost. Formula: ROI = (Annual Return ÷ Total Investment) × 100. Example: If you invest $100,000 and earn $12,000 annually in profit, that's 12% ROI.

What is a good ROI percentage for rental property?

Aim for 8-12% ROI on rental properties. This means earning $8,000-$12,000 per year on a $100,000 investment. Anything above 10% is considered strong. For comparison, the stock market averages 7-10% historically.

How is ROI different from profit?

ROI is a percentage showing efficiency, while profit is a dollar amount. ROI lets you compare investments of different sizes. Example: A $10,000 rental investment with 20% ROI ($2,000 profit) may be better than a $100,000 investment with 5% ROI ($5,000 profit) because your money is working harder.

What is the difference between ROI and cap rate?

ROI shows returns on the money YOU put in (down payment + closing costs). Cap rate shows returns on the total property value. Example: On a $300,000 property with a $60,000 down payment, ROI measures returns on your $60,000, while cap rate measures returns on the full $300,000 property value.

How do you calculate ROI for rental property?

Simple formula: (Yearly rent - yearly expenses) ÷ cash invested × 100. Example: $24,000 annual rent minus $18,000 expenses (mortgage, taxes, insurance, maintenance) = $6,000 profit ÷ $60,000 invested = 10% ROI. Want a deeper look at your total ROI including appreciation and mortgage paydown? Check out our advanced calculator below.

What should I include in my total investment amount?

Include everything you paid upfront: down payment, closing costs (typically 2-4%), any immediate repairs or improvements, and reserves you set aside. Example: $50,000 down payment + $3,000 closing + $7,000 repairs = $60,000 total investment.

What expenses should I subtract from my rental income?

Subtract all operating costs: mortgage payment, property taxes, insurance, maintenance and repairs, property management (even if you self-manage, budget 8-10%), vacancy (5-10%), and utilities you pay. Don't forget to budget for occasional big expenses like roof or HVAC replacement.

How long should I calculate ROI for?

Most landlords use annual (12-month) returns for consistency and easy comparison. You can also calculate monthly or quarterly ROI, but yearly is the standard. Make sure you're comparing the same time period when evaluating different properties.

What factors can improve my rental property ROI?

Three main ways: 1) Buy below market value (negotiate a $20,000 discount and immediately boost your ROI), 2) Increase rent to market rates (raising rent by $100/month adds $1,200 annual return), 3) Reduce expenses (shopping insurance or doing some repairs yourself cuts costs).

Is ROI the only number I should look at?

No. Also consider: cash flow (do you have money left each month?), location and neighborhood quality, property condition and age, potential for rent increases, and your total time commitment. A 12% ROI on a property that constantly needs repairs may be worse than 10% ROI on a hassle-free rental. For comprehensive analysis including appreciation, equity buildup, and tax benefits, check out our advanced calculator below.

Free Simple Rental ROI Calculator | Real Estate Investment Returns

Simple rental ROI calculator

Quick 10-second gut check for your rental property investment.

Purchase Price

Monthly Rent

Monthly Expenses (mortgage, tax, insurance, etc.)

Cash Invested (down payment + closing + rehab)

Track my rental income→

Cash-on-Cash Return

20.57%

Annual return on your cash investment

Monthly Cash Flow$1,200

Annual Cash Flow$14,400

Cap Rate4.80%

Purchase Price$300,000

Cash Invested$70,000

How It's Calculated

Cash Flow:

$2,000 - $800 = $1,200/month

Cash-on-Cash Return:

($14,400 ÷ $70,000) × 100 = 20.57%

Cap Rate:

($14,400 ÷ $300,000) × 100 = 4.80%

Frequently Asked Questions

Common questions about using this calculator

Understanding Rental Property ROI

ROI is the most important metric for evaluating rental property performance. Learn when to use it and how to interpret your results for real estate investments.

What is ROI?

Return on Investment (ROI) measures the profitability of an investment relative to its cost. It's expressed as a percentage and calculated by dividing annual returns by the total amount invested.

A 10% ROI means you earn $10 for every $100 invested annually. Higher ROI indicates better investment performance, but always consider risk and time horizon alongside returns.

When to Use ROI

Use ROI to compare different investment opportunities, evaluate business decisions, or assess rental property performance. It's particularly useful when comparing investments of different sizes.

ROI is most valuable for annual performance tracking and comparing similar investment types. For real estate specifically, also consider cap rate and cash-on-cash return.

ROI vs Other Metrics

While ROI shows overall returns, it doesn't account for time or risk. Cap rate measures property-level returns without financing, and cash-on-cash return shows returns on actual cash invested with debt.

For comprehensive investment analysis, use ROI alongside other metrics. Each provides different insights into investment performance and helps you make better decisions.

Improving Your ROI

Increase ROI by reducing initial costs, boosting revenue, or cutting expenses. For rental properties, this means negotiating better purchase prices, raising rents strategically, and optimizing operating costs.

Smart financing can also improve ROI through leverage. Track your investments systematically with property management software like Rentlab to identify improvement opportunities.