1. What is Rental Property ROI?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment in rental property. It compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Annual Rental Income — Total yearly income from rent
• Annual Expenses — All property-related yearly expenses
• Total Investment — Total amount invested in the property

Explanation: The formula calculates the percentage return on your investment by comparing net income to the total amount invested.

3. Importance of ROI Calculation

Details: Calculating ROI helps investors compare different investment opportunities, assess property performance, and make informed decisions about buying, holding, or selling rental properties.

4. Using the Calculator

Tips: Enter all values in dollars. Include all expenses (mortgage, taxes, insurance, maintenance, etc.) and all investment costs (purchase price, renovations, etc.) for accurate results.

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 and risk tolerance. Higher-risk markets may demand higher ROI.

Q2: Should I include mortgage principal in expenses?
A: No, only include the interest portion of mortgage payments as expenses. Principal payments are part of your investment return.

Q3: How does ROI differ from cash-on-cash return?
A: ROI considers total investment while cash-on-cash return only considers actual cash invested (excluding financed amounts).

Q4: Should I include property appreciation in ROI?
A: This calculator focuses on cash flow ROI. For total return, you would need to include estimated appreciation.

Q5: How often should I calculate ROI?
A: Recalculate annually or whenever significant changes occur (rent increases, major expenses, property improvements).