1. What is Rental Property Profitability?

The profitability ratio measures how much profit a rental property generates relative to the total investment. It helps investors evaluate whether a property is a good investment opportunity.

2. How Does the Calculator Work?

The calculator uses the profitability formula:

Where:

• Annual Rental Income — Total yearly income from rent
• Annual Expenses — All property-related expenses (maintenance, taxes, insurance, etc.)
• Mortgage — Annual mortgage payments
• Total Investment — Total amount invested in the property

Interpretation: A ratio above 0 indicates profitability, with higher values representing better returns.

3. Importance of Profitability Calculation

Details: Calculating profitability helps investors compare different properties, assess investment performance, and make informed purchasing decisions.

4. Using the Calculator

Tips: Enter all values in dollars. Be sure to include all expenses for accurate calculation. Total investment should include purchase price plus any renovation costs.

5. Frequently Asked Questions (FAQ)

Q1: What is a good profitability ratio?
A: Generally, ratios above 0.08 (8%) are considered good, but this varies by market and investor goals.

Q2: Should I include property appreciation in the calculation?
A: This calculator focuses on cash flow. Appreciation is a separate long-term benefit not included here.

Q3: What expenses should I include?
A: Include property taxes, insurance, maintenance, repairs, property management fees, and vacancy allowance.

Q4: How does this differ from ROI?
A: This is a simplified cash-on-cash return calculation. ROI typically includes appreciation and tax benefits.

Q5: Should I use gross or net rental income?
A: Use gross income minus vacancy allowance (typically 5-10% of gross rent).