1. What is ROI for Rental Properties?

ROI (Return on Investment) measures the profitability of a rental property investment. It compares the net income generated by the property to the total investment cost, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Income} \) — Rental income minus all expenses ($/year)
• \( \text{Investment Cost} \) — Total purchase price plus any renovation costs ($)

Explanation: The equation calculates what percentage of your investment you earn back each year through rental profits.

3. Importance of ROI Calculation

Details: Calculating ROI helps investors compare different property investments, assess profitability, and make informed purchasing decisions.

4. Using the Calculator

Tips: Enter annual rental income, all annual expenses (mortgage, taxes, maintenance, etc.), and total investment cost (purchase price + renovations). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI for rental properties?
A: Generally, 8-12% is considered good, but this varies by market and investor goals.

Q2: Should I include mortgage principal in expenses?
A: No, only include interest payments. Principal payments increase your equity.

Q3: How does appreciation factor into ROI?
A: This calculator shows cash-on-cash ROI. Total ROI would include property value appreciation.

Q4: What expenses should I include?
A: Include all operating expenses - taxes, insurance, maintenance, vacancies, property management, and repairs.

Q5: How accurate is this ROI calculation?
A: This gives a basic estimate. More complex calculations might factor in tax benefits, appreciation, and loan terms.