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Rental Property ROI Calculator
The real ROI on a rental property is the SUM of three returns — annual cash flow, annual principal paydown, and annual appreciation — divided by the cash you put in. This calculator combines all three. Most investors look at only one and undercount their actual return.
Historical US average ~3.5%; varies dramatically by market.
Total ROI
25.47%
$19,100 annual return on cash invested
Cash flow
7.20%
Principal
4.27%
Appreciation
14.00%
Excellent. Top-decile leveraged return.
The ROI formula explained
Total ROI = (Cash flow + Principal paydown + Appreciation) ÷ Cash investedThree components:
- Cash flow: rent minus all operating expenses minus mortgage. This is the money in your pocket each month, annualized.
- Principal paydown: the portion of each mortgage payment going to loan balance (not interest). This is equity build — invisible until you sell or refi.
- Appreciation: the property's market value increase. The most-volatile component, market-dependent.
Sum the three, divide by cash invested (down payment + closing + initial rehab), and you have the actual annual return on YOUR capital.
Worked example: $300k property, $75k cash invested. $5,400 annual cash flow + $3,200 principal paydown + $10,500 appreciation (3.5%/yr) = $19,100 total annual return. ROI = $19,100 ÷ $75k = 25.5%.
Frequently asked questions
What's the formula for rental property ROI?
Total ROI = (Annual cash flow + Annual principal paydown + Annual appreciation) ÷ Total cash invested. This captures the full return story — not just cash flow (cash-on-cash) and not just price growth (appreciation). The composite number is what your money actually returned over the year.
What's a good ROI on a rental property?
12%+ is strong for leveraged buy-and-hold. 18%+ is excellent (top decile). 8-12% is decent — better than most index funds long-term. Below 8% is bond-like and probably not worth the operational complexity of being a landlord unless you have non-financial reasons (1031 exchange, tax planning, geographic diversification).
How is total ROI different from cash-on-cash return?
Cash-on-cash only counts the annual cash flow piece. Total ROI adds principal paydown (the portion of mortgage payment building equity) plus appreciation. On a typical leveraged rental, total ROI is usually 2-3x the cash-on-cash number because the appreciation + equity components add meaningfully even when cash flow is modest.
How is total ROI different from IRR?
Total ROI is a single-year snapshot. IRR is annualized over the full holding period, including the exit sale. IRR is more accurate for long-hold analysis (10+ years) because it captures compounding. ROI is faster for back-of-napkin comparisons and works well for year-by-year decisions.
Should I include tax savings in ROI?
Optional but common. Adding the depreciation tax shield (after-tax) bumps ROI by 1-3 percentage points for a typical investor in a 24-32% bracket. This calculator focuses on pre-tax ROI for comparability; for after-tax modeling, use the full TrueCap analyzer.
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