1. What is ROI for Rental Property?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of a real estate investment. For rental properties, it compares the net income generated by the property to the total amount invested.

2. How Does the Calculator Work?

The calculator uses the basic ROI formula:

Where:

• Net Income — Annual rental income minus all expenses (mortgage, taxes, maintenance, etc.)
• Total Investment — Total cash invested in the property (down payment, closing costs, renovations, etc.)

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 rental properties, assess performance, and make informed decisions about buying, holding, or selling properties.

4. Using the Calculator

Tips: Enter your net annual income (after all expenses) and total cash invested. Be sure to include all relevant costs in your calculations for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental property?
A: Generally, 8-12% is considered good, but this varies by market and investor goals. Higher-risk areas may demand higher ROI.

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

Q3: How does this differ from cap rate?
A: Cap rate uses property value instead of total investment and doesn't consider financing. ROI accounts for your actual cash invested.

Q4: Should I include tax benefits?
A: This basic calculation doesn't include tax benefits (depreciation, deductions), which can significantly improve actual returns.

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