1. What is Rental Property ROI?

Return on Investment (ROI) measures the profitability of a rental property by comparing its annual net income to the total investment. It helps investors evaluate and compare different real estate opportunities.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Annual Rental Income — Total yearly rent collected
• Annual Expenses — All property-related expenses (mortgage, taxes, maintenance, etc.)
• Total Investment — Purchase price plus any renovation costs

Explanation: The formula calculates the percentage return you earn on your invested capital each year.

3. Importance of ROI Calculation

Details: ROI helps investors compare properties, assess performance, and make informed decisions about buying, holding, or selling investments.

4. Using the Calculator

Tips: Enter all values in dollars. Be sure to include all expenses (property taxes, insurance, maintenance, vacancies, etc.) for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental property?
A: Typically 8-12% is considered good, but this varies by market and risk tolerance.

Q2: Should I include mortgage principal in expenses?
A: No, only include the interest portion of mortgage payments as expenses.

Q3: How does ROI differ from capitalization rate?
A: Cap rate doesn't include financing costs, while ROI accounts for all expenses including mortgage.

Q4: What expenses are often overlooked?
A: Vacancy allowance, property management fees, and capital expenditures (roof, HVAC replacement).

Q5: How can I improve my ROI?
A: Increase rent, reduce expenses, add value through improvements, or refinance at lower rates.