Rental Property ROI Calculator
Analyze a rental's cash flow, returns, and profit at sale.
Details
= $75,000
Monthly cash flow
$415
Cap rate
7.65%
IRR if sold
-25.23%
Profit if sold
-$22,454
Income to date
$34,200
Cash-on-cash
5.6%
DSCR
1.28
This works out the total return on a rental property over a holding period, counting all four ways it makes money.
Cash flow, loan paydown, appreciation and the proceeds at sale are shown separately, so you can see which part is doing the work.
How rental property returns actually work
A rental property pays you in four ways, and most calculations only count one of them.
Cash flow is the rent left after expenses and the mortgage. Loan paydown is your tenant repaying your debt. Appreciation is the property gaining value. Tax treatment can reduce what you owe on all of it.
That is why a property with negative monthly cash flow can still be a good investment, and why one with healthy cash flow in a falling market can be a bad one. Judging on cash flow alone misses most of the picture.
The same property returns about 8.7% a year despite costing $421 a month to hold. Almost all of that return depends on appreciation, which is the risk this view makes visible.
What to enter
- Purchase price and down payment
- The price, and the cash you put in. Financing is central here, since leverage magnifies both gains and losses.
- Monthly rent
- Gross rent before vacancy and expenses.
- Hold period
- How long you plan to own it. Longer periods let appreciation and paydown compound; they also carry more uncertainty.
- Appreciation rate
- Annual growth in value. This assumption drives the result more than any other, so it is worth testing a pessimistic figure.
The metrics, and what each one misses
- [Cap rate](/real-estate/cap-rate-calculator)
- Property income against price. Ignores financing entirely. Good for comparing buildings.
- [Cash-on-cash](/real-estate/cash-on-cash-return-calculator)
- This year's cash against cash invested. Includes the mortgage but ignores paydown and appreciation.
- Total ROI
- What this page calculates. Counts everything over a holding period, including the sale.
- [DSCR](/real-estate/dscr-calculator)
- Whether the income covers the loan. A lender's test rather than a return measure.
What this assumes
Appreciation is steady. Real markets are not, and property values can fall for years at a stretch.
Selling costs are significant. Agent fees and closing costs commonly take 6-8% of the sale price.
Tax treatment is not modelled. Depreciation, deductions and capital gains all affect the real return.
How to calculate return on a rental property
Add up all four sources of return over the holding period, then compare against the cash you put in.
- cash flow
- Can be negative, and often is on a leveraged purchase
- loan paydown
- The reduction in your mortgage balance over the period
- appreciation
- The gain in property value, less selling costs
Work out annual cash flow. NOI minus mortgage payments. Negative is a real possibility and should not be hidden.
Find the loan paydown. The mortgage balance at the start minus the balance at the end. Early years pay down very little.
Estimate appreciation. Compound your growth rate over the hold period, then subtract selling costs.
Divide by cash invested. Down payment plus closing costs plus upfront work. Then annualise across the years held.
See a worked example: the same property that loses $421 a month
- Price
- $400,000, 25% down at 6.5%
- Rent
- $2,500 a month
- Hold
- 5 years at 3% appreciation
Cash flow: −$5,054 a year, so −$25,270 over five years.
Loan paydown: the balance falls from $300,000 to $280,833, adding $19,167.
Appreciation: the value grows to $463,710, adding $63,710 before selling costs.
Total gain: $57,604 on $112,000 invested, which is 51.4% over five years, or about 8.7% a year.
Note where that return came from: appreciation is more than the whole gain. Without it the deal loses money.
About 8.7% a year, despite negative cash flow
Frequently asked questions
Because cash flow is only one of four returns. Loan paydown and appreciation can more than cover a monthly shortfall.
In the example, the property costs $421 a month to hold and still returns about 8.7% a year over five years. Whether that is acceptable depends on whether you can comfortably fund the shortfall every month for five years.
Something conservative. Long-run US house price growth has broadly tracked a few percent a year, but with long flat or falling stretches inside that average.
Run the numbers at 0% appreciation as well. If the deal only works when prices rise, you are speculating on the market rather than investing in the income.
[Cash-on-cash](/real-estate/cash-on-cash-return-calculator) measures one year of actual cash against the cash you invested. It is immediate and ignores everything you cannot spend today.
Total ROI counts the full picture over a holding period. The same deal can be −4.51% on one measure and +8.7% a year on the other, and both figures are true.
They are real and can be significant, particularly depreciation, which shelters income without costing cash.
They are not modelled here because they depend entirely on your situation. Treat any tax advantage as upside on top of the figure this page gives, and check it with an accountant.
They matter more than people expect: agent commission and closing costs commonly take 6-8% of the sale price.
On a $463,710 sale that is roughly $28,000 to $37,000, which is a large share of the appreciation gain. Short holding periods are hit hardest, because there is less appreciation to absorb it.
Problems people actually run into
A return that depends entirely on appreciation
In the worked example the appreciation is $63,710 while the total gain is $57,604. Strip out appreciation and the deal loses money outright.
That is not automatically wrong, but it is a bet on the market rather than on the property's income. Run every deal at 0% growth and see what is left. If nothing is, know that you are speculating.
Ignoring the cash needed to hold it
A property costing $421 a month needs $25,270 of your own money over five years, on top of the $112,000 already invested.
Investors focused on the eventual return sometimes fail to plan for that ongoing drain, and a vacancy or a major repair on top can force a sale at the worst moment.
Results are estimates for general information only and are not professional financial, medical, or legal advice. Read our full disclaimer.
Last updated: September 4, 2026