1. What is ROI in Rental Property?

ROI (Return on Investment) measures the profitability of a rental property investment by comparing the net income generated to the total investment cost. It's expressed as a percentage and helps investors evaluate potential rental properties.

2. How Does the Calculator Work?

The calculator uses the ROI equation:

Where:

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

Explanation: The equation shows what percentage return you can expect annually on your invested capital.

3. Importance of ROI Calculation

Details: Calculating ROI helps compare different investment properties, assess whether a property meets your investment goals, and make informed purchasing decisions.

4. Using the Calculator

Tips: Enter annual rental income, annual expenses (including mortgage, taxes, insurance, maintenance, etc.), and total investment cost. All values must be positive numbers.

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. Higher risk properties typically require higher ROI.

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

Q3: How does this differ from cap rate?
A: Cap rate doesn't include financing costs, while ROI does. ROI gives a more personalized view of your actual return.

Q4: What expenses should I include?
A: Include all operating expenses: property taxes, insurance, maintenance, property management, vacancies, and mortgage interest.

Q5: Does this account for property appreciation?
A: No, this calculates cash-on-cash return only. For total return, you'd need to factor in appreciation and tax benefits.