Real estate & rental
Rental Property ROI Calculator
Works return on a rental property, where the components should be reported separately.
Result
Simple payback, with no discounting and no financing cost. For anything large or long, money now is worth more than money later and a lender will want interest, both of which make the real return lower than this.
Get a Free Business AuditHow the calculation works
Total return from cash flow, principal reduction, appreciation and tax effects, against the cash invested, with each component shown separately. Reporting them together produces a single number that conceals which part is cash and which part exists only on paper until a sale.
What moves the number
- Cash flow, which is the only component you can spend.
- Principal reduction, which accelerates over the loan term.
- Appreciation, which is an assumption.
- Tax effects, which depend on individual circumstances.
Where this one goes wrong
A headline return dominated by appreciation describes an assumption rather than a property, and the same property with a lower assumed growth rate can look unremarkable, which is why testing the assumption is more informative than refining the arithmetic. Tax effects also depend on the owner's own position, including income level and how depreciation interacts with it, so a general figure is indicative at best and worth checking with a professional.
Before you quote
- Report each component separately, not as one figure.
- Test a lower appreciation assumption.
- Confirm tax effects for your own circumstances.
Questions
About this calculator
Why separate the return components?
Because only cash flow can be spent. Principal reduction and appreciation exist on paper until a sale or refinance, and a single combined figure conceals which part of the return is actually available to the owner.
How much does the appreciation assumption matter?
Enough to dominate a long projection. A headline return driven by assumed growth describes the assumption rather than the property, which makes testing a lower rate more informative than refining anything else in the model.
Are the tax effects reliable?
Indicative at best, because they depend on the owner's income level, how depreciation interacts with their position, and future circumstances including any eventual sale. They are worth confirming with a professional rather than relied on from a calculator.
The formula
payback = cost / (monthly gain - monthly running cost)
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How to use this calculator
- Up-front cost ($). Enter your own figure; the page starts at $12,000.
- Extra gross profit per month ($). Enter your own figure; the page starts at $1,400.
- Extra running cost per month ($). Enter your own figure; the page starts at $220.
- Period to judge it over. Enter your own figure; the page starts at 36.
The result updates as you type, so you can try a figure, see what it does to payback period, 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 |
|---|---|
| Up-front cost | $12,000 |
| Extra gross profit per month | $1,400 |
| Extra running cost per month | $220 |
| Period to judge it over | 36 |
What comes out
| Result | Value |
|---|---|
| Payback period main result | 10.2 |
| Net gain per month | $1,180 |
| Net return over the period | $30,480 |
| Return on investment | 254% |
It pays for itself in 10.2 months and returns $30,480 over 36 months, a 254% return.
How sensitive the answer is
Holding everything else steady and changing only up-front cost, this is what happens to payback period. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Up-front cost ($) | Payback period |
|---|---|
| $6,000 | 5.1 |
| $9,000 | 7.6 |
| $12,000 example above | 10.2 |
| $18,000 | 15.3 |
| $24,000 | 20.3 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Up-front cost ($)
- A money amount, starting at $12,000.
- Extra gross profit per month ($)
- A money amount, starting at $1,400.
- Extra running cost per month ($)
- A money amount, starting at $220.
- Period to judge it over
- A number, between 0 and 240, starting at 36.
What the results tell you
| Result | What it is |
|---|---|
| Payback period | The headline result. A decimal figure. |
| Net gain per month | A money figure. |
| Net return over the period | A money figure. |
| Return on investment | A percentage. |
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.
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.