# ROI Calculator for Rental Property

Whether you are a seasoned real estate investor or a new landlord, it is important to measure Return on Investment (ROI) on your asset to determine your profitability. Simply put, ROI measures how much profit is earned from an investment as a percentage of the initial investment cost. However, as you will learn here, there are several variables that influence the rental property ROI calculation. Since this can get complicated, we have created this ROI Calculator for Rental Property to help simplify your ROI calculation.

## ROI Calculator for Rental Property:

### Purchased with cash:

\$0.00

Gain on Investment

0.00

ROI %

### Purchased with Financing:

\$0.00

Gain on Investment

0.00

ROI %

## What is Return on Investment in Real Estate?

Return on Investment is an accounting measurement used in purchases across almost every economic sector. It measures how much profit is made on a property as a percentage of the money invested. Return on investment in real estate gives investors a similar measurement, however, there are additional factors to consider.

While you still use your property’s appreciation in value to determine return on investment in real estate, net operating income (NOI) will be included as well. As you know, NOI includes rent and other income as well as expenses such as property taxes, insurance, utilities, repairs and maintenance, property management costs, and more. Use this net operating income calculator to find your NOI.

Additionally, if you have a mortgage on your rental property you need to include your debt payments, cash down payment, and closing costs into your rental property ROI calculation.

## Rental Property ROI Calculation

The rental property ROI calculation can generally take two forms, depending on whether you purchase your property with cash, or finance it with debt.

### Real estate purchased with cash:

ROI = (NOI + appreciation) / cost

When you purchase real estate with all cash, the rental property ROI calculation is very straightforward. Simply add your net operating income and appreciation of the property’s value and divide it by the initial purchase price.

### Real estate purchased with debt:

ROI = (NOI – mortgage payments + principal paid down + appreciation) / cash cost

However, when you use debt to finance your real estate purchase, the rental property ROI calculation gets more complex. Here, include your mortgage payments, any principal you have paid down, and property appreciation, as well as cash invested for the down payment and closing costs. Use the above ROI calculator for rental property to see how these factors influence your ROI calculation.

## What is ROI Used For?

When discussing various investments, ROI is a commonly used term.  The easiest understanding is that return on investment is a measure of overall wealth gained. However, real estate investment involves many variables. Return on investment for real estate is interpreted differently depending on the application and who you’re talking to. Given the complexity of purchasing and operating rental property, and the various inputs one can choose to include, we don’t believe a rental property ROI calculation is actually a very objective calculation; use this in conjunction with other rental property calculators for landlords to measure the performance of your investment.

#### Landlord Gurus Take on ROI:

The way we think about ROI is that it just gives you a snapshot of how much money you’d gain on your purchase cost, which we believe is only meaningful if you intend to sell. It is also highly subjective depending on the period of time you’ve owned an asset: investing \$1000 and gaining \$200 is far better over one year than ten. One nice element of ROI, however, is that it shows you how much wealth you’re building as you pay down debt.

As with many of these calculations, calculating ROI is most valuable as a comparison tool.  How well is my real estate performing versus stocks or other investments? How is my property doing this year vs last year?

## What Information Will I Need to Calculate Return on Investment for Real Estate?

1. Gain on Investment
2. Cost of Investment (original purchase price, including all transaction costs)

Keep in mind that the Gain on Investment will include all income & operating costs, appreciation, as well as tax and mortgage expenses, if any.

## How to Calculate ROI for Rental Property?

To calculate ROI for rental property, the calculation will differ significantly depending on the property and funding methods. See above to use our simple ROI calculator for rental property. Let’s assume each of these scenarios is over a one year period:

## Rental Property ROI Calculation: Examples

Real estate purchased with cash: I buy a rental house for \$102,000 (\$100,000 asking price plus \$2000 in transaction costs), I earn \$5500 after all expenses (NOI), and I sell for \$112,000 after one year. My gain is \$15,500 so my ROI is 15.2%.

(NOI + appreciation) / cost = ROI

\$5500 + \$10,000 / \$102,000 = 15.2%

Real estate purchased with financing: I buy the same \$100,000 house using \$23,500 of my cash for the down payment and closing costs, I earn \$5500 in NOI, I pay \$4800 in mortgage payments, I pay down \$300 in principal, and I sell for \$110,000. My gain is \$11,000, giving me an ROI of 47%.

(NOI – mortgage payments + principal paid down + appreciation) / cash cost = ROI

\$5500 – \$4800 + \$300 + \$10,000 / \$23,500 = 47%

## ROI Calculator for Rental Property: Takeaway

By meticulously tracking your property’s income and expenses using rental property management software, you can then take advantage of our ROI calculator for rental property to help maximize your property’s profitability. Our favorite reporting and accounting software includes Landlord Studio and Stessa. Either will ensure you maintain good financial records so you can keep tabs on your rental property ROI calculation.

SERVICE DESCRIPTION RATING MORE
BEST OVERALL
Stessa
• Asset management and accounting software for real estate investors. Smart money management, automated income and expense tracking, personalized reporting and more.
• Accounting and Financial Tracking
49.5
RUNNER UP
RentRedi
• RentRedi is an all-inclusive landlord-tenant app. Manage vacancies, screening, and rent collection from wherever you are, on any device.
• Strength: Complete Solution
47.5
TAX PREP
Rentec Direct
• Designed to address the needs of DIY landlords as well as property management companies, Rentec Direct includes all the tools necessary to manage and rent your properties.
• Strength: Complete Solution
47.0

Disclosure: Some of the links in this post are affiliate links and Landlord Gurus may earn a commission. Our mission remains to provide valuable resources and information that helps landlords manage their rental properties efficiently and profitably. We link to these companies and their products because of their quality, not because of the commission.

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