How to Calculate Rental Property ROI (Step by Step)

The full inputs you need

Acquisition: purchase price, down payment, interest rate, loan term, closing costs, and any rehab needed before a tenant moves in.

Income: monthly market rent (verified against actual comparable listings, not the seller's number) plus other income such as parking, storage, laundry, or pet rent.

Operating expenses: property taxes, insurance, property management, maintenance, capital reserves, HOA dues, utilities you cover, and a realistic vacancy rate — 5% in a strong market, more where turnover is frequent.

If you cannot verify rent and taxes from a real source, your ROI is a guess with decimals on it.

Cap rate, cash-on-cash, and total ROI compared

Cap rate = NOI ÷ price. Property-level, ignores your loan. Best for comparing deals.

Cash-on-cash = annual cash flow ÷ cash invested. Investor-level, includes your loan. Best for deciding whether to buy.

Total ROI = (cash flow + principal paydown + appreciation) ÷ cash invested. The most complete picture and the least reliable, because appreciation is an assumption, not a measurement. Many investors compute it with 0% appreciation as a floor case.

Worked example, start to finish

A $325,000 single-family rental, 20% down ($65,000), $9,750 closing costs, 30-year loan at 7.0%. Rent $2,200, vacancy 5%, taxes $270/mo, insurance $120/mo, management 8%, maintenance 5%.

Step 1 — effective income: $2,200 × 12 = $26,400, less 5% vacancy = $25,080.

Step 2 — operating expenses: taxes $3,240 + insurance $1,440 + management ~$2,006 + maintenance ~$1,254 = about $7,940. NOI = $25,080 − $7,940 = $17,140.

Step 3 — cap rate: $17,140 ÷ $325,000 = 5.3%.

Step 4 — debt service: about $1,730/mo, or $20,760/year. Annual cash flow = $17,140 − $20,760 = about −$3,620, roughly −$300 per month.

Step 5 — cash-on-cash: −$3,620 ÷ $74,750 = about −4.8%. Step 6 — total ROI: add roughly $2,650 of first-year principal paydown and, if you assume 3% appreciation, $9,750 of value growth: ($−3,620 + $2,650 + $9,750) ÷ $74,750 ≈ 11.7%. Strip the appreciation assumption and it drops to about −1.3%.

That spread is the whole argument in rental investing: this deal is a loss on cash, a small win on equity, and a strong win only if the market cooperates.

Run it automatically

The Field ROI calculator takes these same inputs and returns NOI, cap rate, cash-on-cash return, and monthly cash flow instantly, with a PDF deal analysis you can send to a partner or lender.