Calculate cap rate, cash-on-cash return, and full ROI for rental property investments.
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NOI = Annual rent × (1-vacancy) - expenses - property tax. Cap rate = NOI / Purchase price. Cash-on-cash = Annual cash flow / Down payment. Cash flow = NOI - annual mortgage payments.
Cash-on-cash return above 8% is strong. Cap rate of 5-10% is typical. Target total return (appreciation + cash flow) of 10-15% annually.
Cap Rate = Net Operating Income ÷ Property Value × 100. NOI = Annual Rent - All Operating Expenses (excluding mortgage). Ignores financing.
Cash-on-Cash = Annual Cash Flow ÷ Total Cash Invested × 100. Measures actual cash return on your down payment. Includes mortgage payments.
Property tax, insurance, maintenance (1% of value/year), vacancy (5-10%), property management (8-12%), HOA, utilities paid by owner, capital expenditures.
Both have merit. Real estate: leverage, cash flow, tax benefits. Stocks: liquidity, no management, more diversified. Both belong in a long-term portfolio.
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Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.