Investing in real estate can be rewarding and lucrative, but only if you have a good handle on your financial goals and decision-making. Life as a landlord or rental property investor is busy enough as it is, which is why real estate calculators are such handy, helpful tools.

Rather than struggling to work things out on your own, you can use a calculator to quickly get the answers you need. One of the most important tools is a rental property calculator for real estate investments.

ROI (return on investment) is a major consideration for anyone working in the rental property business, but it is not the only thing you need to know. A rental property calculator can tell you a range of details- including return on investment- to help you determine whether or not a prospective investment property is right for you.

This comprehensive guide to using a rental property calculator covers what it tells you, the variables that affect the calculations, examples of some key measurements, and tips on how to use it for your business.

We have also included a few other useful details regarding rental property investment calculators, their limitations, and when they can be leveraged in real estate.

What Is ROI in Real Estate Investing?

ROI stands for return on investment- which is the general term given to the profit earned on an investment property. By profit, we mean the money left over after deducting the costs of anything related to the investment itself, including the initial purchase price, renovations, loan expenses, etc.

There are several ways to look at the return on investment, with various measures and formulas that take different aspects into consideration. Some examples include cap rate and cash on cash return.

That said, the official definition of return on investment (ROI) in real estate is the profit earned overall after a property is sold. It differs from the other measurements mentioned above as it cannot be fully realized until after the rental property owner sells their unit.

You can use an ROI calculator to estimate the expected return on investment based on cash flow, expenses, and a property's current market value.

A rental property calculator looks at investment property returns in multiple ways. Rather than focus solely on the after-sale returns, it looks at how much a real estate investor can expect to earn back annually and how quickly they can recover their initial investment and start making profitable income.

How Does a Rental Property Calculator Work?

A rental property calculator works by collecting lots of information about your property, income, and expenses to give you estimated returns in several formats.

Its purpose is to help you determine whether or not an investment property is right for you and to track annual progress on properties you already own- although the latter is the less common use.

What Calculations are Made Using a Real Estate Investment Property Calculator?

You can work out several metrics using this type of calculator.

It is worth noting that you can also calculate return on investment (ROI) in its simplest form using a specific tool only for that.

A comprehensive rental property calculator will tell you the following details.

  • Net operating income
  • Net operating expenses
  • Annual debt service and positive cash flow
  • Cap rate
  • Cash-on-cash return on investment
  • Purchase price per square foot

The exact options vary depending on the free rental property calculator you use, with some focusing more on the overall after-sale return on investment and others covering the bigger picture.

Examples of Key Investment Return Calculations

Let's take a closer look at how some of these things are calculated- including the formulas and variables for each.

We have focused on the three primary measures used to calculate returns.

Return on Investment (ROI)

There are two methods used to calculate ROI- the cost method and the out-of-pocket method. The latter of the two is the more popular with real estate investors.

First, let's look at the cost method. Of the two, this is the simpler method. It is based on the initial cost of your property, the money you have spent on improvements, and the current market value if you were to sell.

ROI Formula (Cost Method)

  • Current Market Value - (Initial Cost + Additional Contributions) = ROI (you can then express the difference as a percentage)

Say you bought a property for $150,000. You spent $50,000 on improvements, and it is now valued at $250,000.

  • $250,000 - ($150,000 + $50,000) = $50,000 or 20% ROI

If you bought your property outright without taking out a mortgage, this method is definitely the best. It gives you a simple evaluation of how much your property value has increased and how much you would earn back on the sale.

More investors use the out-of-pocket method, which does not look at the entire original property value- just the down payment and additional contributions. In other words, it is based on the home's equity.

ROI Formula (Out-Of-Pocket Method)

  • Current Market Value - (Down Payment + Additional Contribution) ÷ Current Market Value

It essentially takes the potential profit and divides it by the expected selling price to work out how much of a return you have earned on the actual out-of-pocket cash you spent (not including mortgage payments).

Let's use the same numbers as the previous example for comparison. You bought a property worth $150,000 but only paid $30,000 upfront. Again, you spent $50,000 on improvements. The property is now worth $250,000.

  • $250,000 - ($30,000 + $50,000) ÷ $250,000 = 68% ROI

The return looks much higher now, but you would then have to take the money spent on repaying your mortgage out of the actual profit amount.

Cap Rate

Cap rate, or capitalization rate, is a calculation used to measure the annual return on investment based on your net operating income (NOI). It is used to predict what percentage of the property cost you could earn back over 12 months.

Investors use it to compare properties and decide if the returns potential works for them.

Cap Rate Formula

  • Cap Rate = Net Operating Income ÷ Current Market Value

If you were considering buying a property at $200,000 that had a rental income potential of $1,500 per month. Once you deduce your operating expenses and taxes, that becomes $1,000 ($12,000 per year). The calculation would look like this.

  • $12,000 ÷ $200,000 = 6% Cap Rate

This tells you that the property could earn back 6% of its cost each year. It is then up to you to decide if this works with your strategy. Generally speaking, a cap rate return of 5-8% is considered good in residential real estate.

Cash-on-Cash Returns

Cash-on-cash return is another way to measure your annual return on investment but with a slightly different approach to cap rate. It uses your net annual cash flow rather than operating income and is divided by your initial investment rather than the property value.

COC Return Formula

  • COC Return = Cash Flow ÷ Cash Invested

Let's use the same numbers as we did in the cap rate formula. The property value is $200,000, but you plan to pay $70,000 as a down payment and take out a mortgage loan for the rest. You will also pay $3000 in closing costs and expect to spend $15,000 on improvements. That makes your cash investment $68,000

As mentioned, the gross rental income potential is $1,500, but we need to deduct the operating expenses. The difference between NOI and cash flow is the tax: cash flow is calculated pre-tax. If the operating expenses are $400 per month, the net cash flow is $1,10 x 12 = $13,200.

  • $13,200 ÷ $88,000 = 15% COC return

Some people also include the money they repay towards the principal balance on their mortgage as part of their cash investment amount.

The general target range for cash-on-cash returns is 8-12%.

What Variables Affect Investment Returns in Real Estate?

These formulas are handy to have- but it helps to know a little more about the variables and what they all mean.

Below, we have gone into a little more detail about some of the main things that affect return on investment calculations in real estate and rental property.

Property Value

One of the most important variables in any real estate returns calculation is the value of the property- a.k.a. the purchase price or expected purchase price. You need this to determine for how long your income is paying back the initial investment cost and when it starts being profitable.

The property value is also used to establish the percentage of return annually in cap rate results, which are often included in a property investment calculator.

If you already own a property, you can use the price you paid. If you are still considering an investment, use the current market value or asking price as your guideline.

Net Operating Income

How much you earn through the property is the next major component in any returns calculations. Your net operating income (NOI) is the annual or monthly cash flow you are left with (usually earned through rental income) after you deduct all relevant expenses.

Rental property owners can calculate their net operating income by subtracting their gross operating expenses from their gross rental income (plus any other income generated through their property).

The amount of money a property generates (or is expected to generate) plays a vital role in establishing potential returns. If the net operating income is not enough to give you a decent annual return, then it may not be good for your investment strategy if you move ahead.

A rental income calculator can help you quickly work out what you would have left based on the estimated income potential and

Typical Rental Property Expenses

Taking a closer look at operating expenses, let's first talk about the typical costs that come with rental properties.

Some of the usual expenses include maintenance costs, utilities, HOA charges, monthly repair costs, insurance, and your monthly mortgage payment.

All these things eat into your monthly rental income and ultimately reduce your returns. Understanding what these costs are likely to look like is an important consideration in rental property investing.

Some buildings have much higher average repair and maintenance costs than others. The same applies to utilities. Insurance premiums can be vastly different from one property to the next based on location, and your mortgage payments make a huge difference to the percentage of monthly rent you are left holding.

Other Expenses

If you are considering investing in a property that needs a lot of work done, you also need to factor in the cost of renovations and rehab to get it to where it needs to be.

Property taxes should also be considered, although they are not included in every type of return on investment calculation.

Loan Details

Most properties require a mortgage. If you took out a loan to finance the investment (or plan to do so) you also need to input these details to see how they impact your returns.

As well as the loan term, amount, and interest rate, you should also input the closing costs and other fees paid as part of the down payment cost. This can tell you what your estimated monthly mortgage payments will look like, which will also impact your gross income.

Vacancy Rate

In an ideal world, 100% of your properties would be 100% occupied to maximize rental income, but that is not always the case. You must account for vacancies when you work out your annual net operating income. Otherwise, the number won't be accurate.

If you have 20 units rented at $2,000 each per month, the monthly rental income potential is $40,000. However, if only 16 units are occupied, you won't earn that amount. You would need to apply a 20% vacancy rate (or 80% occupancy rate, depending on the calculator) to get the actual figure.

In this case, it would be $32,000 per month. Over a year, that is quite a difference.

How are Rental Investment Property Calculators Leveraged?

The primary use for a real estate investment calculator is when people are looking at potential purchases and want to compare their options. You can use a rental property ROI calculator to compare multiple properties to find the investment that best fits your portfolio, budget, and strategy.

Say, for example, you are looking at two similar properties but only want to invest in one. Many features are similar, but you want to find out which one is the better investment (in theory) overall. Using an investment property calculator, you can compare the two quickly and easily.

What Is a Good Return Rate for Rental Property Investments?

A good return rate for one property may not necessarily be good for another. Commercial rental properties generate different returns from residential rental properties, and individual units are not always comparable to one another.

That said, the general benchmark for a good return on investment for real estate is 10% or higher since this is the average rate you could earn through bonds.

Of course, lots of things should be considered before you set a return target, and you should be realistic about what you want to achieve through a real estate transaction.

Are There Any Limitations to be Aware Of when Using a Rental Property Calculator

It is important to remember that the results generated through a rental property calculator are estimates. They are worked out using the figures you provide, but unless you know with absolute certainty the value of each variable, the actual returns could be different.

Return on investment calculations for real estate are purely predictions- the actual return rate cannot be realized until after the sale is finalized. You generally use the current value of a property for this calculation, but there is no guarantee you will sell for that amount.

Just like the selling price cannot be predicted with 100% accuracy (usually), the purchase price is also usually an estimate. Unless you already have a definitive number and know exactly what your initial investment would be, you can only use the most recent valuation based on the market conditions at that time.

Where Does DoorLoop Come In?

DoorLoop calculators cover a range of important factors in the real estate rental property investments world- including return on investment, tax calculations, and other comparison tools. They are easy to use with fast results tailored to your details.

Using calculators with DoorLoop helps you stay ahead of the game and in control of your financial goals, but it doesn't stop there.

If you want a better way to boost productivity in your rental property business and enhance profitability, DoorLoop's comprehensive rental property management software is the way to go.

Built as a one-stop shop for all your landlord needs and rental property demands, DoorLoop takes every element of running a business in the industry and streamlines them in a convenient, easily accessible, and highly effective platform.

Whether you are a new property manager still getting started, a growing company looking to cut back on property management fees, or a large-scale operation looking for a more cohesive way to run things, DoorLoop can make a difference.

With features including advanced accounting tools, personalized marketing assistance, online rent and maintenance management, and application/lease handling, there really is a lot to love.

If you want to explore the complete list of excellent features and see DoorLoop in action, schedule a free demo today!


You learn a lot through a rental property calculator for investment properties. Return on investment is one of the measures you can use to compare potential rental property investment opportunities, but it is important to consider other factors as well.

Using a comprehensive rental property returns calculator gives you a better idea of the bigger picture, with numbers to work with from a few different angles.

Remember, calculators provide accurate estimates based on the details you provide, so be sure to gather as much information (from trusted and reliable sources) as you can before you begin.

Don't forget to check out DoorLoop for its calculators, excellent investment advice, and all-in-one property management software solution for landlords and rental property investors who want to work smarter!

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!