Rental Property Calculator

Use this calculator to evaluate your rental property.

Access Advanced Calculator

How to Calculate Rental Property ROI?

Not sure whether a prospective rental property is a good investment? Baselane’s rental property calculator helps you evaluate your deal, find out the property’s ROI, annual cash flow, cash-on-cash return, and more. When you’re ready, use Baselane to collect rent, track the performance of your rental, and maximize your profit.

Why Use a Rental Property Calculator?

When you’re planning to buy a rental property, it can be easy to focus on big numbers like the purchase price and your potential rental income. While these numbers are essential, they are only a few pieces of the puzzle. Buying a rental property is a considerable investment, and it’s critical to factor in all variables before making your decision.

Some variables might seem insignificant but can tip the scales and shrink your return on investment to the point where buying the property isn’t worth it – or could even lose you money. Here are some variables that many landlords fail to consider when attempting to calculate rental property ROI:

  • What Rent to charge?
  • Loan costs
  • Unexpected repairs
  • Taxes
  • Legal fees
  • Vacancy rates

Using our calculator can help you identify how different variables will impact your bottom line and decide if a rental property is a good investment.

Note: Lower-end properties tend to score better on rental income calculators than mid- and higher-end properties, but don’t be fooled. Lower-end properties come with the risk of higher vacancy rates and repair costs. Turnover could be more frequent, which means chasing down delinquent tenants and repairing expenses like painting, new carpets, and fixing damage caused by tenants.

How To Calculate Rental Property Return?

Our rental property calculator takes a massive amount of variables into account and helps you evaluate your current rental property. Here’s how it works.

There are two ways to use this calculator.

  1. Quick analysis – You can enter basic information about a potential rental property like the purchase price and monthly rental income to determine a basic return on your investment based on your monthly cash flow.
  2. Advanced analysis – For a more in-depth analysis of a property’s profitability, input the purchase price, rental income, loan details, renovation costs, and monthly expenses. These extra details can help you accurately estimate cash flow, cash-on-cash return, and capitalization rate.

Using this information, the calculator will produce several key metrics that you can use to determine whether this income property is a good investment:

Return on Investment (ROI)

Your property’s return on investment (ROI) is a measure of the profitability of an investment. ROI attempts to measure the return on an investment relative to the cost. The simple formula for calculating ROI is:

Return on Investment (ROI) = net annual rental income / cost of investment

For example, if a property costs $100,000 to acquire, and it generates $6,000 per year after all expenses, including the mortgage payments, property taxes, insurance, and maintenance costs, the ROI of this property is 6%. An ROI between 5% and 10% is considered acceptable. An ROI of over 10% is a good investment.

Annual Cash Flow

Annual cash flow is the most basic metric that you can use to quickly determine whether your property is a good investment. Your yearly cash flow is determined by calculating the gross income for your property and deducting all expenses related to the property like maintenance, insurance, property taxes, utilities, and mortgage payments. The difference between these two is the property’s annual cash flow.

Annual cash flow = gross income – all expenses

At minimum, your property should have a positive annual cash flow. Otherwise, it is not a good investment.

Net Operating Income

Net operating income, or NOI, is slightly different from annual cash flow. To calculate NOI, you’ll need to take the property’s revenue and deduct operating expenses but exclude interest payments on loans and capital costs like renovations. What is left is the total cash available after operating expenses.

Net Operating Income (NOI) = annual income – annual operating expenses

(not including mortgage and renovations)

If your property has a negative NOI, it is not a good investment.

Cash-on-Cash Return

Our calculator also quickly calculates your cash-on-cash return, which is a metric that measures the cash income earned relative to the money that you invested in the property. This is an annual pre-tax metric that can be used to set a target for projected earnings and expenses.

The formula to calculate cash-on-cash return is:

Cash on Cash Return = annual cash flow (net) / total cash invested Cash-on-Cash Return (COC)

Cash-on-Cash Return (COC) Example: If you want to earn $300/month for a rental property, how much cash-on-cash return should you target? According to the rental property calculator, you should target at least ~10% COC return.

If you buy a property for $150,000 and can earn $1,500 of rental income per month, assuming you put down 20% and borrowed 80% to acquire the property, based on the rental property calculator, you should target at least ~10% COC return.

To calculate the COC return you can do the following:

  1. Calculate Annual Cash Flow (net): $300 * 12 = $3,600
  2. Calculate the total cash invested” $150,000*20% = $30,000 + some closing costs =$34,592
  3. Divide the Annual Cash Flow by the total cash invested: $3,600/$34,592 = 10.41%

This means you are inherently seeking at least a 10% return on your cash invested. So going forward when you evaluate other rental property investments you can evaluate if you can achieve that. And if you do not, you may want to keep hunting for better deals.

See the below screenshots for how to setup the calculator to get this result. Try out different scenarios to set your COC return goal.

Rental Property Calculator

CAP Rate

The capitalization rate or cap rate, is another metric for determining the rate of return that is expected on a rental property investment. Cap rate is the ratio of net operating income (NOI) to the property’s value. You can calculate the cap rate with this formula:

Cap rate = net operating income / current home value

For example, if your property has an NOI of $8,000, and a value of $200,000, the cap rate is 4%.

Cap rate is a valuable tool for quickly comparing investment properties. You can also use past cap rates to evaluate the performance of an investment property, which helps you determine how the property will perform in the future. There are a few rules to keep in mind when evaluating a property’s cap rate:

  • The higher the cap rate, the higher the return
  • The higher the return, the bigger the risk.

So while a high cap rate means your return is higher, these properties are also riskier. On the other hand:

  • The lower the cap rate, the lower the return
  • Lower returns are less risky

For example, a property with a 6% cap rate may be in good repair with well-off tenants. This property is lower risk but also lower return. A property with a higher cap rate may need costly repairs because maintenance has been deferred, making it a more significant risk.

You can use cap rate to determine a fair purchase price for a rental property using the following formula:

Maximum purchase price = net operating income / cap rate

For example, if a property’s cap rate is 10%, and the NOI is $10,000 per year, your maximum purchase price should be $100,000. If the cap rate increases to 8%, your maximum purchase price would increase to $125,000.

50% Rule

Another standard method to quickly analyze a potential investment property is the 50% rule. The 50% rule indicates that the property’s operating expenses (not including the mortgage payment) should be 50% or less of its gross income. That doesn’t mean you’ll get a 50% profit, as the remaining 50% will be used for mortgage or loan payments. Here is the formula:

Operation expenses < Gross Rental Income x 50%

For example, if you have a property with $35,000 in gross rental income annually, and the operating costs are $15,000 per year, this property passes the 50% rule. If you are evaluating a property as a potential deal, this rule can help you quickly determine if the property could be a good investment. Use the 50% rule to filter out good investments, but make sure to use our calculator to perform a deeper analysis before making your final decision.

1% Rule

The 1% rule is another metric you can use to determine whether this property is a good buy. The 1% rule suggests that the property’s gross monthly rental income should be 1% or more of the purchase price. Here is the formula:

Gross Monthly Rental Income > 1% x Purchase Price

For example if you were to purchase a property for $200,000, your gross monthly rental income should be at least $2,000 per month. Remember that gross monthly rental income includes the property’s anticipated vacancy rate. Use the 1% rule to filter out good investments, but make sure to use our calculator to perform a deeper analysis before making your final decision.

What Is a Good Return on Investment for a Rental Property for 2023?

Entering your property’s information into our rental property calculator is one thing, but knowing how to assess the data correctly is another. Understanding what is a good rental property ROI is an integral part of deciding which property is suitable for your portfolio, so here is a primer on how to assess the calculations above.

How to Calculate ROI for Rental Property?

ROI = Net Annual Returns / Cost of Investment

For example, if an investment generates annual returns of $6,000 and the cost of the investment is $100,000, the ROI would be 6%:

  • ROI = $6,000 / $100,000 = 6%

What is a Good Rental Property ROI?

There is no one correct answer for this question, but we’ll provide a solution based on our experience with rental property investment. In most cases, a rental ROI of under 5% is not worth pursuing (unless there are other reasons to buy it besides ROI).

Returns between 5% and 10% are reasonable for rental properties if you’ve included some conservative cushions for annual repairs, vacancy rate, etc. An ROI of over 10% is generally a good deal. Check how others properties are performing in your area to get an idea of what the expected return should be.

A good rule of thumb is to aim for at least $100-300 per unit in monthly net cash flow. Otherwise, the time commitment of managing vacancies, tenant maintenance calls, and evictions will outweigh the returns.

Example of Target Rental Property Financial Metrics to Achieve

Disclaimer: This is not considered investing advice in any way shape or form.

QuestionFormulaMinimum Score
What Return on Investment (ROI) to target for rental?Net Annual rental income / cost of investmentOk - 5%, Good - 10% or >
How much annual cash flow to target for rental?Annual Gross income - all expenses> $3-5K
How much net operating income to target for rental?Annual income - annual operating expenses (not including interest and renos)> $8-15K
How much Cash-on-Cash Return to target for rental?Annual Cash flow / total cash invested> 10%
What CAP Rate to target for rental?Annual Net operating income / current home value6% to 10%, higher cap rate means more risk and return
Does my rental property meet the 50% Rule?Operating expenses >50% of gross monthly rental income50%
Does my rental property meet the 1% Rule?Gross monthly rental income > 1% of purchase price1%

How to Increase Rental Property ROI?

If you’ve found that your investment property violates or does not meet any of the above critical target rental property return metrics, this may be a red flag that you should not proceed with your purchase. That said, you can change some variables to improve your property’s ROI. For example:

    • Insurance: If you are conservatively estimating your property’s insurance costs, consider getting a no commitment quote to lower your monthly insurance costs
    • Property management: If you’re using a property management company, consider reducing their service or nixing the service altogether to improve your profitability
    • Maintenance: Older properties tend to have more maintenance needs, but a detailed inspection can help you more accurately forecast your maintenance costs and implement preventative maintenance
    • Renovations: If you planned to renovate your property, consider reducing the scope to save costs, or, conversely, increasing the scope so you can raise your monthly rent
    • Purchase price: Offering a lower purchase price will give you a better ROI
    • Mortgage: Use a mortgage calculator to determine whether you can reduce your monthly debt costs
    • Monthly rent: Revisit your estimated monthly rent to determine whether you can increase it to improve your ROI
    • Vacancy rate: A standard vacancy rate is 5% to 7%, lowering this rate will increase your operating income and gross rent

FAQ About the Rental Property Calculator​

ROI compares your net rental income to the cost of your investment, including maintenance, property taxes, debt and vacancy. Generally speaking, an ROI of 5% to 10% is considered a good investment. A rental property with an ROI of over 10% is definitely a good investment. If you are considering a rental property with a lower ROI, you may adjust some aspects like the property’s price or your rental amount to improve your ROI.

The 50% rule is a quick way to determine whether your rental is a worthwhile investment. The 50% rule says that the rental property’s operating expenses should not exceed 50% of its income. These expenses include maintenance, utilities, and insurance but do not include the debt associated with maintaining your property, like loans, interest, and mortgage payments. The 50% rule is essential because it helps you assess the ancillary expenses related to your property. Extra costs like Home Owner’s Association fees, taxes, and condo fees can turn a rental that looks profitable on the surface into a bad investment.

The 1% rule helps you quickly assess whether the purchase price for your rental property is reasonable relative to the rental income you expect to earn. According to the 1% rule, your rental property’s monthly rent should be 1% or more of the purchase price. That means if you are purchasing a property for $100,000, you should expect to earn at least $1,000 per month in rental income. The 1% rule is just one of the ways you can determine whether a rental property is a good buy, and it doesn’t apply to all properties.

Related stories

Best Cities in Indiana for Young Families

Best Cities in Indiana for Young Families

In this article: 1. Carmel 2. Zionsville 3. Fishers 4. Westfield 5. Noblesville Single-family homes can balance out the risks of real estate investing with…

Free Rental
Property Calculator