Real Estate Investment Calculator

Rent grows 3% a year, but cash flow grows from $3,841 to $9,726 over ten years — 153%, against 30% for the rent. The reason is that debt service is fixed. Rent and expenses both inflate, but the mortgage payment is the same $1,289 in year ten as it was in month one, so the growth in NOI drops straight through to the bottom line.

This is the strongest structural argument for fixed-rate debt on a rental. It is also why a deal that breaks even today can be genuinely good in five years, and why one that depends on refinancing into cheaper money is not the same kind of asset at all.

How do you calculate the return on a real estate investment over time?

Project each year's cash flow, track the loan balance down and the property value up, then assume a sale: net proceeds are value less selling costs less the remaining loan. The IRR is the annual rate that makes the initial cash outlay, all the interim cash flows and the sale proceeds net to zero. On the example here, a ten-year hold produces an IRR of about 12.9%.

What is a good IRR for a rental property?

Private real estate is typically underwritten to a 12% to 18% IRR on a five to ten year hold, with the lower end for stabilised, low-risk assets. The number matters less than what drives it: an IRR built mostly on an assumed exit price is a different risk than one built on collected rent.

Why does the IRR look terrible in year one?

Because selling in year one means paying selling costs — 7% of the sale price on the default assumption — on top of the closing costs you paid to buy. Those round-trip transaction costs are roughly 9% to 10% of value, which takes several years of appreciation and principal paydown to recover. Real estate punishes short holds.

What is the difference between IRR and equity multiple?

Equity multiple is total cash back divided by cash in, with no adjustment for time; IRR annualises the same cash flows. A 2.0x multiple over six years is an excellent outcome and over sixteen years is a mediocre one, and only the IRR can tell them apart. Both are shown in the projection table.

Should I assume rent and expenses grow at the same rate?

Not necessarily, and the gap compounds. If expenses grow one point faster than rent, NOI growth stalls and then reverses. The example uses 3% for both; try 3% rent growth against 4% expense growth and watch what year-fifteen cash flow does.

For the year-one snapshot instead, see the rental property ROI calculator or the cash on cash return calculator. To take the projection to a lender or a partner, the printable deal report lays the first ten years out on one page.