1. What is ROI in Rental Property?

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

2. How Does the ROI Calculator Work?

The calculator uses the standard ROI formula:

Where:

• Annual Rental Income — Total yearly rental revenue
• 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 on your invested capital after accounting for all expenses.

3. Importance of ROI Calculation

Details: ROI helps investors compare properties, assess 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, vacancies) for accurate results. Total investment should include purchase price plus any major renovations.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I include mortgage principal payments?
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 cap rate?
A: Cap rate doesn't include financing costs, while ROI does. Cap rate = NOI/Property Value, ROI = (NOI - Debt Service)/Total Investment.

Q4: What expenses should I include?
A: Include all operating expenses - property taxes, insurance, maintenance, repairs, property management, vacancies, and utilities (if paid by owner).

Q5: How can I improve my ROI?
A: Increase rental income, reduce expenses, add value through renovations, or refinance at lower interest rates.