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Free Rental Property ROI Calculator
Evaluate any single-family rental deal with the same metrics professional investors use. Enter purchase price, rent, vacancy, expenses, mortgage terms, and your hold horizon — get year-1 cap rate, cash-on-cash return, IRR over the hold period, equity multiple, NOI, the 1% rule check, GRM, expense ratio, and a year-by-year operating projection. Models rent growth, expense inflation, appreciation, and net sale proceeds at exit. All math is industry-standard (Appraisal Institute Income Capitalization Approach + Newton-Raphson IRR on the cash-flow series).
Purchase
Investment properties typically require 20–25% down minimum.
As % of purchase price. Typically 2–5%.
Investment property rates are typically 0.5–1% higher than primary residence rates.
Rent & vacancy
Use comparable rents from Zillow / Rentometer for your specific market.
National average ~7%. Plan higher (10–15%) for short-term or seasonal rentals.
Long-term US average ~3%. Adjust for your local market.
Time horizon
Year-1 cash flow
-$2,205/yr
= -$184/mo after debt service and reserves.
Cap rate
5.3%
NOI ÷ price
Cash-on-cash
-2.7%
Year-1 cash ÷ invested
IRR (10yr)
8.3%
Annualized return
Equity multiple
2.27x
Total returned ÷ invested
Year-1 cash flow
-$2,205/yr
= -$184/mo after debt service and reserves.
Cap rate
5.3%
NOI ÷ price
Cash-on-cash
-2.7%
Year-1 cash ÷ invested
IRR (10yr)
8.3%
Annualized return
Equity multiple
2.27x
Total returned ÷ invested
Year-by-year operating projection
Rent grows at your input rate; expenses inflate; debt service is fixed.
| Year | Gross rent | Opex | NOI | Cash flow |
|---|---|---|---|---|
| Year 1 | $28,800 | $10,738 | $15,758 | -$2,205 |
| Year 2 | $29,664 | $11,045 | $16,246 | -$1,717 |
| Year 3 | $30,554 | $11,361 | $16,749 | -$1,214 |
| Year 4 | $31,471 | $11,686 | $17,267 | -$696 |
| Year 5 | $32,415 | $12,021 | $17,801 | -$162 |
| Year 6 | $33,387 | $12,365 | $18,351 | +$388 |
| Year 7 | $34,389 | $12,719 | $18,918 | +$955 |
| Year 8 | $35,420 | $13,084 | $19,503 | +$1,539 |
| Year 9 | $36,483 | $13,459 | $20,105 | +$2,142 |
| Year 10 | $37,577 | $13,846 | $20,726 | +$2,763 |
Year-1 cash flow
-$2,205
IRR (10yr)
8.3%
📐 Open methodology, sources & limitations
Formula
Effective gross income = gross rent × (1 − vacancy rate)
Operating expenses = property tax + insurance + HOA + management
+ maintenance reserve + capex reserve
(mortgage P&I is NOT an operating expense — it is debt service)
NOI (Net Operating Income) = effective gross income − operating expenses
Cap rate = year-1 NOI ÷ purchase price
Cash flow = NOI − annual debt service (P&I × 12)
Cash-on-cash = year-1 cash flow ÷ total cash invested
(total cash invested = down payment + closing costs)
GRM = purchase price ÷ annual gross rent
1% rule = monthly rent ÷ purchase price × 100 (passes if ≥ 1.0)
Hold-period metrics:
Net sale proceeds = final value − loan balance − selling costs
Equity multiple = (total cash flow + net sale proceeds) ÷ total cash invested
IRR solved via Newton-Raphson on the cash-flow series:
year 0 = −total cash invested
years 1..N = annual cash flow (final year also adds net sale proceeds)Assumptions
- Default inputs are intentionally conservative: 25% down, 7% vacancy, 10% management, and 10% combined maintenance + capex reserves.
- Maintenance and capex reserves are computed as a percent of gross rent and treated as operating expenses every year.
- Mortgage principal & interest is debt service, excluded from NOI and the cap rate by design.
- Cap rate uses year-1 NOI; cash-on-cash uses year-1 pre-tax cash flow.
- Rent, expenses, and property value escalate at separate user-set annual growth rates.
- IRR is solved numerically and may return no value when the cash-flow series has no sign change.
Sources
- Income Capitalization Approach — Appraisal Institute (cap rate and NOI standards)
- Newton-Raphson method for internal rate of return on a cash-flow series
- BiggerPockets rental-property analysis conventions (1% rule, cash-on-cash, reserves)
This tool does NOT model:
- Depreciation deductions and depreciation recapture at sale
- 1031 like-kind exchange mechanics
- Passive activity loss rules and the qualified business income deduction
- Capital gains tax on the sale
- State and local landlord-tenant regulation and rent control
- Lump-sum capital expenditures, renovations, or BRRRR refinance events
Last reviewed: 2026-05-20
This methodology section exists so you can verify the math. We show our formulas because you deserve to know how a number was calculated. This is calculation transparency, not financial advice.
When to use this rental ROI calculator
Every deal in single-family rental investing lives or dies on six numbers: cap rate, cash-on-cash return, gross rent multiplier, IRR over your hold period, equity multiple, and the 1% rule check. This calculator computes all of them from the same inputs you'd enter into an Excel pro-forma — but with the underlying math (full amortization, year-by-year cash flow projection, IRR via Newton-Raphson on the cash-flow series) wired in correctly so you can't accidentally double-count an expense or use the wrong denominator on a ratio.
Use it whenever you're evaluating a deal — before you make an offer, before you order the inspection, and again after the inspection if anything materially changes the numbers (deferred maintenance, ARV vs as-is, vacancy assumptions). The default inputs are intentionally conservative: 25% down, 7% vacancy, 10% management, 10% combined maintenance+capex reserves. Plug in your specific deal and watch the cash flow, cap rate, and IRR update in real time.
How rental property math works
The 6 metrics that matter
- Cap rate = NOI ÷ purchase price. The unlevered yield on the property — what you'd earn if you paid all cash and held it forever. Modern markets in major US cities run 4–6%; emerging or higher-cap markets can hit 8–10%. Cap rate is the single best cross-deal comparison metric because it strips out financing.
- Cash-on-cash = annual pre-tax cash flow ÷ total cash invested. Measures the return on the cash you actually put in (down + closing). Levered, so depends on rate. 8–12% is a strong cash-on-cash in today's rate environment; 4–7% is typical; anything below 4% is a tax-loss/appreciation play, not a cash-flow deal.
- Gross rent multiplier (GRM) = purchase price ÷ annual gross rent. Lower is better. The GRM ignores expenses and is mostly used for quick comparison shopping — think of it as the inverse of the rent-to-price ratio.
- 1% rule — monthly rent ≥ 1% of purchase price. A back-of-envelope screen for whether a deal has any chance of cash-flowing. A property priced at $200k must rent for $2,000/mo to pass. The rule is a screen, not a guarantee — you still need to run the full numbers. Most modern US markets don't produce 1%-rule deals at all anymore; 0.6–0.8% is the new realistic floor.
- IRR — internal rate of return, the annualized return on your cash invested that includes both cash flows and the sale at end of hold. The calculator solves IRR via Newton-Raphson on the cash-flow series: year 0 outflow (down + closing), years 1..N cash flows, year N adds net sale proceeds.
- Equity multiple — total dollars returned ÷ total cash invested. A 2x multiple means you doubled your money over the hold period. Most institutional rental investors target 1.8–2.5x over a 5–7 year hold.
Why NOI excludes debt service
NOI (Net Operating Income) = effective gross income (rent × (1 − vacancy)) − operating expenses. Operating expenses are taxes, insurance, HOA, management, and reserves for maintenance and capex. Mortgage P&I is not an operating expense — it's debt service. Cap rate uses NOI specifically because it's the unlevered metric. If you paid all cash, your cap rate would equal your cash-on-cash return; financing leverages the cash-on-cash up or down depending on whether the rate is above or below the cap rate.
Reserves are not optional
Maintenance and capex reserves are the most-cheated line items in beginner pro-formas — they get omitted entirely or set absurdly low to make the deal pencil. They're not optional. Roofs cost $8k–$15k and last 20 years (so $400–$750/yr reserve), HVAC costs $5k–$10k and lasts 15 years, hot water heaters and appliances each cost $1k–$3k. Plan 10% combined maintenance + capex reserves on most single-family rentals. Older properties (50+ years) or multifamily with shared systems need 12–15%. The reserves don't need to actually be saved each month — but they need to be in your math so you don't convince yourself the deal is better than it is.
Common rental ROI mistakes
- Optimistic rent assumptions. The rent your seller quotes is the rent they're achieving today on a tenant who may be below market. Get comparable rents from Zillow, Rentometer, or your local property manager. Use the conservative number.
- Ignoring vacancy. Even great markets average 5–8% vacancy. Short-term rentals can run 25–40%. Self-managing in a hot rental market with quick turnovers can hit 3%, but plan for at least 7% unless you have specific data.
- Omitting reserves. The single biggest source of "I thought this was a cash-flow deal" surprise. 10% combined maintenance + capex is the standard rule of thumb for SFR. Older properties need more.
- Mixing up cap rate and cash-on-cash. They're different metrics for different purposes. Cap rate is unlevered (compare deals); cash-on-cash is levered (compare to other cash investments).
- Trusting the 1% rule as a green light. The 1% rule is a quick screen, not a guarantee. A property that passes the 1% rule but has high taxes (NJ, IL) or expensive HOA can still cash-flow negative. Always run the full numbers.
- Underestimating closing and exit costs. Total round-trip transaction costs are 8–13% of purchase price. A 5-year hold needs ~8% net appreciation just to break even on those costs.
- No exit plan. Are you buying to hold forever (appreciation + cash flow), to flip (BRRRR strategy), or to 1031 exchange into a bigger deal in 5 years? The right answer changes how much financial risk to take on the deal.
Frequently Asked Questions
What is a good cap rate for a rental property?+
It depends on your market and risk tolerance. Modern major-metro single-family rentals typically run 4–6% cap. Higher-cap markets (cleveland, st. louis, smaller midwest cities) can hit 8–10% but come with higher tenant turnover, capex risk, and slower appreciation. Below 4% is mostly a tax-loss / appreciation play. Above 10% usually means you're taking on operational risk (Class C/D neighborhoods, short-term rentals, or unrealistic rent assumptions). Compare cap rate to the 10-year Treasury for context — historically, a 4-point spread over Treasury is considered fair compensation for the illiquidity and management.
How is cap rate different from cash-on-cash?+
Cap rate uses NOI (Net Operating Income, before debt service) divided by purchase price — it's the unlevered yield. Cash-on-cash uses your annual pre-tax cash flow (after debt service) divided by the cash you put in (down + closing). Cap rate compares deals; cash-on-cash compares the property to other cash investments. With financing at a rate below the cap rate, leverage boosts cash-on-cash; with financing above the cap rate, leverage hurts.
What is the 1% rule and is it still relevant?+
The 1% rule says monthly rent should be at least 1% of the purchase price. A property priced at $200,000 needs to rent for $2,000+/month. It's a quick screen, not a guarantee — a 1%-rule property with high taxes (Texas, Illinois, New Jersey) or expensive HOA can still lose money. Most major US markets stopped producing 1%-rule deals during the 2020–2022 price runup; 0.6–0.8% is the realistic floor now. Use the rule as one of several screens, not as a green light.
How do you calculate NOI?+
NOI = effective gross income − operating expenses. Effective gross income is annual rent × (1 − vacancy rate). Operating expenses include property tax, insurance, HOA, property management, maintenance reserve, and capex reserve. NOI does NOT include mortgage P&I — that's debt service and is separate from operating. NOI ÷ purchase price = cap rate.
Should I include maintenance and capex reserves?+
Yes, and don't lowball them. Maintenance covers routine repairs (leaks, appliance issues, painting between tenants). Capex covers big-ticket items (roof, HVAC, water heater, full appliance replacement). Industry standard is 5–10% of gross rent EACH for maintenance and capex separately on single-family rentals. Older properties (50+ years) need more. The reserves don't need to physically sit in a savings account each month — but they need to be in your math so you don't convince yourself a deal cash-flows when it actually doesn't.
What IRR is good for a rental property?+
IRR depends on the hold period and risk profile. Conservative cash-flow plays in major metros typically target 8–12% IRR over a 7–10 year hold. Value-add (BRRRR) deals target 15–25%. Pure appreciation plays in fast-growing markets can hit 18–30% but with much more downside risk. Anything above 30% usually means the assumptions are too optimistic. Compare IRR to the S&P 500's historical 10% nominal, plus an illiquidity / management premium of 3–5%, so 13–15% is the minimum to justify the work over passive index investing.
Does this calculator account for depreciation and taxes?+
No — it computes pre-tax returns only. Real estate depreciation (27.5-year straight-line on residential) and the qualified business income deduction can add 1–3 percentage points to your after-tax IRR for a typical rental, but the calculation depends on your specific tax situation, passive activity rules, and whether you qualify as a real estate professional. Consult a CPA for after-tax returns; use this calculator for the underlying deal economics.
What's the difference between cap rate and GRM?+
Gross Rent Multiplier (GRM) = purchase price ÷ annual gross rent. It's a very quick comparison metric that ignores all expenses — a property at GRM 8 is "cheaper" than one at GRM 12. Cap rate is more accurate because it includes operating expenses. Use GRM for quick screening across many listings; use cap rate when you're ready to dig into a specific deal.
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