Rental Property Calculator

How do you calculate the ROI on a rental property?

Whether you’re a new landlord or a seasoned investor, determining how to calculate the ROI on a rental property isn’t optional; it’s an essential part of your rental accounting.

The rental property calculator below can help you quickly decide if a particular investment is the right choice for you.

Do you need more details on how it works and what each input means? Check out our How It Works section below, or continue reading for a deep dive into how our calculator works.

Investing 101: Residential Rental Properties in Review

A residential rental property is a home that an owner leases out to tenants who pay rent.

The owner may opt for either a long-term or short-term rental, depending on the property’s location and the investor’s goals. There are many types of rental properties, including:

• Single-family homes
• Multi-family apartment buildings
• Condominiums
• Townhouses
• Duplexes

Many real estate investors consider rental properties to be one of the safest investments you can make. Why? When you invest in rental units, you’ll enjoy:

• Long-term appreciation
• Monthly cash flow
• Tax advantages for rental property investments

But, it isn’t as easy as just buying a property. You’ll need a tool to manage the tenants who’ll inhabit it. Many landlords use property management software like TurboTenant to streamline their entire rental process – from finding great tenants to collecting on-time rent payments.

How the Rental Property Calculator Works

Our rental income calculator can help you determine if a property is the right investment for you. This tool is particularly helpful if you’re just getting started as a landlord. Landlords use it to:

• Estimate the property’s rate of return
• See all of the expenses clearly laid out
• Make quick decisions when making an investment

To use the rental calculator, plug in the correct values and percentage increases, and we’ll take care of the rest. We’ll calculate the following must-know numbers:

• Cap rate
• Cash-on-cash return
• Gross rent multiplier
• Net operating income
• Cash flow
• Purchase price per square foot and bedroom

Keep in mind: Everyone takes a different level of risk when investing. There’s no right or wrong answer when it comes to calculator results. We hope these numbers help guide you in the right direction.

What do the inputs and outputs mean?

At first, rental property investing can seem complex. Once you understand the common terms for calculating your rate of return for a property, you’ll be able to determine if it’s the right investment for you.

Ready to become an expert? Here’s an overview of important definitions for our rental income calculator’s inputs and outputs:

Rental Income Calculator Inputs

Property Details

The property details section includes:

• Property value/purchase price (the seller’s asking price before negotiations)
• Property repair costs (estimated total cost of repairs or renovations you plan to make)
• Square footage (the property’s total size)
• Number of bedrooms

These details determine the property’s overall value, its potential rent price, and how much you’ll need to invest in fixing up the place.

Mortgage Details

The mortgage details section of our rental calculator asks for:

• • Loan term (in years)
  • Down payment cost (typically 10-25% of the purchase price)

• Loan interest rate

• Closing costs (usually 2-5% of the purchase price)

Rental Income Details

Your rental income details include:

• Monthly rent income

• Other monthly income (such as parking, pet rent, or coin-op laundry)
• Anticipated vacancy rate percentage (the national average is around 7%)

Monthly Rental Expenses

Monthly rental expenses are the costs it will take to run your rental property, including:

• Maintenance

• Repairs

• Utilities

• Monthly HOA fees

• Property management fees

If you have an older property, expect higher operating expenses to account for increased maintenance or wear and tear.

Annual Rental Expenses

The annual rental expenses section asks for:

• Yearly property taxes

• Annual insurance fee

Make sure you’re adding the total costs for the entire year, not just the monthly costs.

Property Operating Financial Outputs

Monthly Gross Potential Income

The monthly gross potential income tells you the total possible income when a property is 100% occupied.

Keep in mind: Monthly gross potential income reflects the total revenue a property could produce, but not necessarily what it will be.

Monthly Vacancy Loss

Your monthly vacancy loss gives you an idea of how much income you could lose due to vacancies. Our rental calculator bases the monthly vacancy loss on the anticipated vacancy rate percentage (remember the one you input earlier?).

Keep in mind: The national vacancy average is 7%.

Monthly Effective Gross Income

Effective gross income (EGI) is the gross potential income minus the vacancy loss. The EGI can help you determine your gross revenue, as it factors in potential vacancies that reduce the property’s revenue.

Monthly Management Fee

Planning on hiring someone to help out at the property? The monthly management fee accounts for the cost of hiring a property manager or somebody else to help run the property.

Total Monthly Operating Costs

The total monthly operating cost calculates the amount you’ll need to pay to keep the property running. It includes:

• Repairs
• Maintenance
• Insurance

Keep in mind: Older properties typically have higher monthly expenses because they’ll likely require more frequent repairs. Total monthly operating costs don’t include any major repairs or capital expenditures that may arise in the future.

Net Operating Income (NOI)

NOI is the effective gross income minus your operating expenses. Since it subtracts all of the expenses you should expect to incur (except for mortgage payments), NOI represents your investment’s overall profitability.

Annual Debt Service (Mortgage Payments)

The annual debt service is your mortgage payment (both principal and interest). Seeing how your total mortgage payment increases your overall expenses helps you understand if the investment makes sense for you.

Annual Cash Flow

Want to calculate your annual cash flow? You can do it by subtracting the annual debt service from the net operating income. Your annual cash flow indicates your total annual profit (or, in some cases, loss) after all expenses and mortgage payments are accounted for.

Rate of Return Outputs

Cap Rate

Also known as the capitalization rate, the cap rate represents the expected rate of return from a rental property investment. The cap rate doesn’t include financing, which makes it different from the return on investment (ROI). To calculate the cap rate, divide the net operating income (NOI) by the property’s price or current market value.

Ultimately, the cap rate is a convenient way to compare rental investment opportunities. Landlords use it to analyze a property based on non-mortgage expenses and income.

Paid cash for a property? In this case, the cap rate would be your ROI.

Cash-on-Cash Return

The cash-on-cash return is the amount you can expect to earn back in cash flow each year. It’s based on the total cash you initially invested in the property.

To calculate your cash-on-cash return, divide the after-tax annual cash flow by the cash paid to purchase the rental property.

Annual Gross Rent Multiplier

You can calculate your gross rent multiplier (GRM) by dividing the total sales price of the property by its annual gross rent. Landlords use it to gauge the value of the investment property. It helps you understand if the property’s asking price is in the correct range, especially when you compare it to others in the same area.

Property Detail Outputs

Purchase Price Per Square Foot

Landlords use the purchase price per square foot to determine the property’s price relative to its size.

Purchase Price Per Bedroom

If your listing is in a college town or near a university, you’ll want to know the purchase price per bedroom. Student renters typically have leases with multiple tenants, so determining the ROI of each bedroom helps:

• Determine ROI
• Compare various property costs by bedroom

Rental Property Calculator FAQ