US Rental Property ROI Calculator (Cash-on-Cash, Cap Rate)

US Rental Property Investing Guide

What should I know about The Four Returns of Rental Property?

Real estate generates returns in four ways simultaneously, which is why even modest properties can produce strong total returns: (1) Cash flow — monthly rent minus expenses. (2) Appreciation — property value rising over time. US average 3-4%/year historically. (3) Principal paydown — tenant's rent paying down your mortgage, building equity. (4) Tax benefits — depreciation, mortgage interest deduction, 1031 exchanges. A property with mediocre cash flow can produce 15-20%+ total annual return when

What do I need to know about The 1% Rule and Cap Rate?

1% rule (classic landlord screening): monthly rent should be at least 1% of purchase price. A $200,000 home should rent for $2,000+/month. Practically achievable in Midwest/South markets. NEARLY IMPOSSIBLE on coasts (California, NY, Boston, DC). Cap rate = NOI / Purchase Price. Class A property in stable market: 4-6%. Class B in growth market: 6-8%. Class C in declining market: 8-12%+. Higher cap rate often indicates higher risk (worse tenants, more maintenance, less appreciation potential). New investors are often drawn to the highest cap rates without appreciating the higher risk that typically comes with them.

What's the key thing to understand about Hidden Costs (the 50% Rule)?

Many novice landlords forget operating costs. Industry rule: 50% of rent goes to operating expenses (NOT including mortgage). Real costs: property tax 1-2% of value annually; insurance 0.5-1% annually; vacancy 5-10%; maintenance 5-10% of rent; property management 8-10% of rent if hired; capital expenditures (new roof, HVAC) prorated. A $2,400/month rental in Texas costs roughly: $1,200/month in operating expenses + $1,400 mortgage = $2,600 total costs, BEFORE accounting for actual repairs and tenant turnover costs, which the 50% rule is specifically designed to estimate for, since these expenses are often underestimated by new landlords.

What's the difference between Cash-on-Cash and Cap Rate vs Total Return?

Cash-on-cash return = Annual cash flow / Total cash invested. Measures efficiency of your DOWN PAYMENT, not the property itself. Cap rate = NOI / Property price. Measures property's income productivity independent of financing. Total return = (Cash flow + appreciation + principal paydown) / Cash invested. The complete picture. Example: $300,000 property, $75,000 down. Year 1: $4,800 cash flow + $9,000 appreciation + $3,500 principal paydown = $17,300 total return / $75,000 invested = 23% total return on the cash invested — a figure that looks dramatically better than the cash-on-cash return alone because it includes appreciation and principal paydown, which aren't guaranteed the way cash flow is.