Rental Property ROI Calculator

Set the appreciation assumption to 0% and the year-one return falls from 17.2% to 7.4% — $3,841 of cash flow plus $2,118 of principal on $80,875. That is still a real return, and it is the one that does not depend on the market doing anything.

It is worth running both. A deal that only clears your hurdle with 3% appreciation baked in is a directional bet; a deal that clears it at zero is an income asset that also happens to be exposed to house prices.

How do you calculate ROI on a rental property?

The calculator adds cash flow, loan principal paid down and assumed appreciation, then divides by the cash invested. Here, $3,841 + $2,118 + $7,950 over $80,875 is 17.2% before tax. The separate depreciation example could add about $1,949 of tax savings in a full year if usable at 24%, giving about 19.6% including that benefit.

Why is ROI so much higher than cash on cash return?

Because cash-on-cash counts only one of the three pre-tax components. On this deal cash flow is $3,841 of a $13,909 total year-one return; the other 72% arrives as equity rather than as money in your account. Both numbers are correct — they answer different questions, and only one of them pays your bills.

Should appreciation be counted in ROI?

Only if you label it as an assumption, because it is the one component you do not control. At 3% a year it is the largest single line in the return above, so a deal that only works with appreciation is a bet on the market rather than an investment in a building. Set appreciation to zero in the calculator and see whether the deal still stands up.

What return does the depreciation shield add?

The illustrative tax example allocates 20% of the $269,200 purchase and capitalised closing cost to land, then adds $8,000 of upfront building improvements. That leaves $223,360 depreciable, or about $8,122 per full year over 27.5 years. If usable at a 24% marginal rate, the deduction could save about $1,949 of tax: a further 2.4 percentage points on $80,875. First-year timing and passive-loss limits can reduce the current benefit.

Is ROI the same as IRR?

No. ROI as calculated here is a single-year snapshot. IRR accounts for when each dollar arrives across the whole hold and includes the sale, so a deal with a large payday in year ten has a lower IRR than the same payday in year three. The projection on the real estate investment calculator page shows the IRR at every possible exit year.

For the cash component alone, see the cash on cash return calculator. For the full hold period with IRR and equity multiple at each exit year, use the real estate investment calculator, and for the tax shield in detail the rental property depreciation calculator.