Rental Property ROI Calculator Formula
Understand the math behind the rental property roi calculator. Each variable explained with a worked example.
Formulas Used
Total Annual ROI
total_roi = (total_annual_return / total_cash_invested) * 100Total Annual Return
total_return = total_annual_returnCash-on-Cash Return
coc_return = (annual_cash_flow / total_cash_invested) * 100Variables
| Variable | Description | Default |
|---|---|---|
total_cash_invested | Total Cash Invested(USD) | 80000 |
annual_cash_flow | Annual Cash Flow(USD) | 6000 |
annual_principal_paydown | Annual Principal Paydown(USD) | 4500 |
annual_appreciation | Annual Appreciation(USD) | 12000 |
annual_tax_benefit | Annual Tax Benefit(USD) | 3000 |
total_annual_return | Derived value= annual_cash_flow + annual_principal_paydown + annual_appreciation + annual_tax_benefit | calculated |
How It Works
Total Return on Rental Property
Rental property ROI captures all four wealth-building components of real estate investing.
Formula
Total ROI = (Cash Flow + Paydown + Appreciation + Tax Benefit) / Cash Invested x 100
Four Pillars of Return
1. Cash Flow: Net income after all expenses and debt service 2. Principal Paydown: Equity gained as tenants pay down your mortgage 3. Appreciation: Property value increase over time 4. Tax Benefits: Depreciation and deduction savings
Worked Example
$80,000 invested with $6,000 cash flow, $4,500 paydown, $12,000 appreciation, $3,000 tax benefit annually.
- 01Total annual return: $6,000 + $4,500 + $12,000 + $3,000 = $25,500
- 02Total ROI: $25,500 / $80,000 x 100 = 31.9%
- 03Cash-on-cash return: $6,000 / $80,000 x 100 = 7.5%
- 04The total ROI of 31.9% shows the power of combining all return components
Frequently Asked Questions
Why is total ROI so much higher than cash-on-cash?
Cash-on-cash only measures cash flow. Total ROI adds three hidden return sources: your tenants paying down your mortgage, property value increases, and tax savings from depreciation. Together these can double or triple cash-only returns.
How do I estimate the tax benefit?
Multiply your annual depreciation deduction by your marginal tax rate. For example, $10,000 depreciation at a 30% tax rate provides a $3,000 tax benefit.
Is appreciation guaranteed?
No. Appreciation estimates are projections based on historical trends. Actual appreciation can be negative in downturns. Conservative investors often exclude appreciation from their baseline ROI analysis.
Ready to run the numbers?
Open Rental Property ROI Calculator