1. What is ROI for Rental Properties?

Return on Investment (ROI) measures the profitability of a rental property by comparing the net income it generates to the total amount invested. It's expressed as a percentage and helps investors evaluate the performance of their real estate investments.

2. How the ROI Calculator Works

The calculator uses the basic ROI formula:

Where:

• Net Income — Annual rental income minus all expenses (mortgage, taxes, maintenance, etc.)
• Total Investment — Total amount invested in the property (purchase price + renovations + closing costs)

Explanation: The formula shows what percentage return you're earning on your invested capital each year.

3. Importance of ROI Calculation

Details: Calculating ROI helps investors compare different properties, assess investment performance, and make informed decisions about buying, holding, or selling rental properties.

4. Using the Calculator

Tips: Enter your net annual income (after all expenses) and total investment amount in dollars. Both values must be positive numbers, with total investment greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental properties?
A: Generally, 8-12% is considered good, but this varies by market and risk tolerance. Higher ROI often means higher risk.

Q2: Should I include mortgage principal payments in net income?
A: No, only include interest payments as expenses. Principal payments increase your equity but aren't an expense.

Q3: How does this differ from cap rate?
A: Cap rate uses purchase price in denominator, while ROI uses total investment. ROI accounts for leverage (mortgage).

Q4: Should I include appreciation in ROI?
A: This calculator shows cash-on-cash ROI. For total ROI, you'd need to estimate future appreciation and selling costs.

Q5: How often should I recalculate ROI?
A: Annually at minimum, or whenever significant changes occur (rent increases, major repairs, refinancing).