Rental Property ROI Calculator

Cap rate = NOI / Purchase Price — measures property performance as if bought all-cash. Cash-on-cash = Annual Cash Flow / Total Cash Invested — measures return on your actual money (including leverage). CoC is usually higher than cap rate because leverage amplifies returns. Use cap rate to compare properties; use CoC to evaluate your personal return. Target: 6-10% cap rate, 8-15% cash-on-cash.

Plan for 40-50% of gross rent going to operating expenses (excluding mortgage). The "50% Rule" is a quick conservative estimate. Breakdown: property taxes (15-25%), insurance (5-10%), repairs/maintenance (5-15%), vacancy (5-10%), property management (8-12%), and CapEx reserves. If a deal still cash flows at 50% expenses, it's likely solid. If it only works at 30-40%, there's no margin for error.

Rental real estate offers powerful tax advantages. Depreciation lets you deduct 1/27.5 of building value annually (even while the property appreciates). You can also deduct mortgage interest, operating expenses, and potentially a 20% QBI pass-through deduction. 1031 exchanges allow tax-deferred rollovers into new properties indefinitely. These benefits can effectively add 3-5% to annual returns.

Define criteria first: target 6%+ cap rate, 1% rent-to-price rule, $200+/month cash flow per unit. Sources: MLS with investor-friendly agent, off-market (direct mail, wholesalers, FSBO), and platforms (Zillow, Roofstock). Screen deals in 2 minutes with the 1% rule, do 15-min analysis, then deep-dive 1-2 hours on winners. Expect to analyze 20-50 properties to find one good deal.

Self-manage 1-2 local properties to learn the business; hire management for 4+ properties or remote investments. Self-management saves 10% of rent but requires 2-20 hours/month. Property managers charge 8-12% plus leasing fees but provide hands-off passive income. Hybrid approach: self-manage daily tasks but hire for tenant placement ($500-800). Your time has value — factor that into the decision.