1. What is Return on Investment (ROI)?

ROI (Return on Investment) is a financial metric used to evaluate the efficiency of an investment. For rental properties, it measures the annual return relative to the property's cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Annual Rental Income — Total yearly income from rent
• Annual Expenses — Yearly costs (mortgage, taxes, maintenance, etc.)
• Total Investment — Total amount invested in the property

Explanation: The formula calculates the percentage return by comparing net income (income minus expenses) to the total investment.

3. Importance of ROI Calculation

Details: ROI helps investors compare different rental properties, assess profitability, and make informed investment decisions.

4. Using the Calculator

Tips: Enter all values in dollars. Include all expenses (mortgage, taxes, insurance, maintenance, vacancies) 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 investor goals.

Q2: Should I include property appreciation in ROI?
A: This calculator focuses on cash flow ROI. For total return, you'd need to factor in appreciation.

Q3: How does leverage affect ROI?
A: Using a mortgage can increase ROI percentage (as you're investing less cash) but also increases risk.

Q4: What expenses should be included?
A: Include all operating expenses - mortgage, taxes, insurance, maintenance, vacancies, property management, repairs.

Q5: How does ROI differ from capitalization rate?
A: Cap rate doesn't include financing costs and is based on property value rather than investment amount.