Real estate & rental
Real Estate Investment Property Calculator
Works the return on an investment property across all four of its components.
Result
Appreciation is the largest and least reliable component in most property returns, and this treats it as a steady rate, which it never is. It also ignores tax treatment, which for rental property is substantial and can change the answer materially in either direction. Not investment advice.
Get a Free Business AuditHow the calculation works
Cash flow after operating expenses and debt service, principal paid down over the period, appreciation at the rate assumed, and the tax effect, combined into a total return against the cash invested. Reporting the four separately matters, because three of them are not cash and cannot pay a bill.
What moves the number
- Operating assumptions behind net operating income.
- Leverage, which amplifies both directions.
- Appreciation rate assumed, which is the reader's assumption.
- Tax treatment, which depends on circumstances.
Where this one goes wrong
Appreciation and principal paydown are returns that arrive only on sale or refinance, so a property with an attractive total return and negative cash flow requires funding every month from elsewhere. Know which component is paying you. The appreciation assumption also dominates a long projection, which means the output is largely a consequence of an input the reader chose, and testing a lower rate is the honest way to read it. This is arithmetic, not investment advice.
Before you quote
- Separate cash return from paper return.
- Test a lower appreciation assumption.
- Confirm tax treatment with a professional for your circumstances.
Questions
About this calculator
Where does the return on a rental actually come from?
Cash flow, principal paydown, appreciation and tax effects. Only the first is cash in hand; the others arrive on sale or refinance, which is why a property with a good total return and negative cash flow still needs funding monthly.
How much does the appreciation assumption matter?
It dominates a long projection, which means the output is largely a consequence of an input you chose. Testing a lower rate is the honest way to read the result, since the arithmetic cannot tell you whether the assumption is right.
Is this investment advice?
No. It does arithmetic on figures you supply and says nothing about whether a property suits your circumstances, risk tolerance or alternatives. Those questions belong with professionals who can see your whole position.
The formula
total return combines cash flow, principal paydown and appreciation, against the cash invested
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How to use this calculator
- Purchase price ($). Enter your own figure; the page starts at $385,000.
- Down payment (%). Enter your own figure; the page starts at 25%.
- Mortgage rate (%). Enter your own figure; the page starts at 7%.
- Term (years). Enter your own figure; the page starts at 30.
- Monthly rent ($). Enter your own figure; the page starts at $3,200.
- Operating expenses as a share of rent (%). Enter your own figure; the page starts at 38%.
The result updates as you type, so you can try a figure, see what it does to annualised total return, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Purchase price | $385,000 |
| Down payment | 25% |
| Mortgage rate | 7% |
| Term (years) | 30 |
| Monthly rent | $3,200 |
| Operating expenses as a share of rent | 38% |
| Annual appreciation | 3% |
| Years held | 5 |
What comes out
| Result | Value |
|---|---|
| Annualised total return main result | 16.57% |
| Annual cash flow | $755.27 |
| Principal paid in year one | $2,933 |
| Appreciation over the period | $61,321 |
| Cash invested | $96,250 |
Annualised total return of 16.57%, made up of $755.27 of annual cash flow, $2,933 of principal paydown in year one, and $61,321 of appreciation over 5 years.
How sensitive the answer is
Holding everything else steady and changing only purchase price, this is what happens to annualised total return. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Purchase price ($) | Annualised total return |
|---|---|
| $192,500 | 41.31% |
| $288,750 | 24.82% |
| $385,000 example above | 16.57% |
| $577,500 | 8.33% |
| $770,000 | 4.21% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Purchase price ($)
- A money amount, starting at $385,000.
- Down payment (%)
- A percentage, between 0 and 100, starting at 25%.
- Mortgage rate (%)
- A percentage, between 0 and 20, starting at 7%.
- Term (years)
- A number, between 0 and 50, starting at 30.
- Monthly rent ($)
- A money amount, starting at $3,200.
- Operating expenses as a share of rent (%)
- A percentage, between 0 and 80, starting at 38%.
- Annual appreciation (%)
- A percentage, between 0 and 15, starting at 3%.
- Years held
- A number, between 0 and 40, starting at 5.
What the results tell you
| Result | What it is |
|---|---|
| Annualised total return | The headline result. A percentage. |
| Annual cash flow | A money figure. |
| Principal paid in year one | A money figure. |
| Appreciation over the period | A money figure. |
| Cash invested | A money figure. |
What is not in this number
Property figures here exclude the costs that decide whether a deal works: vacancy, maintenance, management, capital expenditure and the transaction costs at both ends. A return that looks strong before those frequently does not survive them.
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