1. What is ROI for Rental Property?

ROI (Return on Investment) for rental property measures the profitability of your real estate investment by comparing the net income generated to the total investment cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Income} \) — Rental income minus expenses (USD/year)
• \( \text{Investment Cost} \) — Total purchase price and renovation costs (USD)

Explanation: The equation 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 property investments, assess profitability, and make informed purchasing decisions.

4. Using the Calculator

Tips: Enter annual rental income, annual expenses (including taxes, maintenance, etc.), and total investment cost (purchase price + renovations). All values must be in USD.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I include mortgage payments in expenses?
A: For cash flow analysis yes, but for ROI calculation typically no - only operating expenses should be included.

Q3: How does appreciation factor into ROI?
A: This calculator shows cash-on-cash return. For total return, you'd need to factor in property value changes.

Q4: What expenses should be included?
A: Include property taxes, insurance, maintenance, vacancies, property management, and repairs.

Q5: How does ROI differ from cap rate?
A: Cap rate doesn't include financing costs, while ROI can be calculated both before and after financing.