Q1: How is property ROI calculated?
Property ROI (Return on Investment) for rental properties is calculated as: ROI = (Annual Net Income / Purchase Price) × 100%. Annual Net Income = Annual Rental Income - Annual Expenses. This gives you the percentage return on your investment based on cash flow.
Q2: What expenses should I include in the calculation?
Include all property-related expenses: property taxes, insurance, maintenance and repairs, property management fees, HOA fees, vacancy allowance, and any other operating costs. Don't include mortgage payments (principal/interest) if calculating cash-on-cash ROI, but do include them for net cash flow.
Q3: What is a good ROI for rental property?
A good ROI varies by market and investment goals. Generally: 8-12% ROI is considered good for rental properties. However, consider total returns including appreciation, tax benefits, and equity build-up. Cash flow ROI is just one component of real estate investment returns.
Q4: Does this ROI include property appreciation?
No, this calculator only shows cash flow ROI based on rental income minus expenses. It doesn't include property appreciation, tax benefits (depreciation, deductions), or equity build-up from mortgage payments. For complete ROI analysis, factor in all return components.
Q5: How do I improve my property ROI?
Improve ROI by: increasing rental income (rent increases, value-add improvements), reducing expenses (negotiate insurance/taxes, efficient maintenance), finding properties below market value, or improving property to command higher rents. Lower purchase price or higher income both improve ROI.
Q6: Should I use purchase price or total investment cost?
For cash-on-cash ROI, use total cash invested (down payment + closing costs + initial repairs). For overall ROI, use total purchase price. This calculator uses purchase price. Adjust based on whether you're analyzing cash-on-cash returns or total investment returns.