Rental Property ROI Calculator

Cap rate (capitalization rate) is net operating income divided by the property's purchase price. A "good" cap rate depends heavily on your market and risk tolerance. In high-demand urban markets (New York, San Francisco, Seattle), cap rates of 3 - 5% are common because appreciation expectations are high. In secondary or tertiary markets, investors typically target 6 - 10% or more. As a general benchmark, many investors consider 5 - 7% a solid range for residential rentals balancing cash flow and growth potential. Anything above 10% often signals higher risk or a distressed property.

The 1% rule says a rental property's monthly rent should be at least 1% of the purchase price (e.g., a $200,000 property should rent for at least $2,000/month). It's a quick screening filter, not a full analysis. Properties that pass the 1% rule tend to cash flow positively in most markets. However, the rule breaks down in high-cost-of-living cities where purchase prices are very high relative to rents. Use it as a first filter, then run the full numbers - including taxes, insurance, vacancy, maintenance, and financing costs - in this calculator.

The defaults in this calculator (8% vacancy, 5% maintenance) are commonly used starting assumptions. Vacancy at 8% equals roughly one month vacant per year - realistic for most markets when averaged over time. Maintenance at 5% of annual rent covers routine repairs, appliance replacements, and small capital expenses. For newer properties or hot rental markets, you might use 5% vacancy and 3 - 4% maintenance. For older properties or slower markets, 10 - 15% vacancy and 8 - 10% maintenance may be more appropriate. Be conservative - optimistic assumptions are the #1 reason new landlords get burned.

Cash-on-cash return (CoC) measures your annual cash flow as a percentage of your actual out-of-pocket cash invested - primarily your down payment plus closing costs. It's the most important metric for leveraged investors because it tells you what your dollars are actually earning. A CoC of 6 - 10% is generally considered good for a financed property. Note that this calculator uses down payment as the invested cash figure; add your estimated closing costs (typically 2 - 5% of purchase price) to the down payment input for a more precise result.

Break-even rent is the minimum monthly rent you need to collect to cover all monthly expenses (mortgage, taxes, insurance, HOA, and average monthly vacancy and maintenance costs). If your actual rent is above break-even, you have positive cash flow. If it's below, you're subsidizing the property out of pocket each month. Knowing your break-even rent is critical before buying - it tells you how much buffer you have if the market softens or the property sits vacant.

This calculator focuses on current cash flow and operating metrics, not appreciation - because appreciation is uncertain and speculative. Many investors make the mistake of accepting negative cash flow because they expect the property to appreciate significantly, only to find themselves trapped with an asset they cannot service. Evaluate a rental property as a standalone cash-flowing business first. If appreciation happens, treat it as a bonus. Positive cash flow with no appreciation is a solid investment; negative cash flow with expected appreciation is speculation.

Gross Rent Multiplier is the property price divided by annual gross rent. It's a quick way to compare properties before doing a full analysis. A GRM of 10 means you'd pay 10 years of gross rent to buy the property. Lower GRM generally means better value, but GRM ignores operating expenses - two properties with identical GRM could have very different net operating incomes if expenses differ. Use GRM for initial screening alongside cap rate and cash-on-cash return for a complete picture.

Professional property management typically costs 8 - 12% of monthly rent. This calculator defaults to 0% (self-managing), but if you plan to hire a manager, enter 10% as a starting point. Management fees significantly reduce cash flow - on a $1,500/month rental, a 10% fee means $150/month or $1,800/year going to the manager. Self-managing saves money but costs time. For remote owners or those with multiple units, professional management usually makes sense even at the cost of some return.