Rental Property ROI Calculator
Calculate the gross yield, net yield (cap rate), and cash-on-cash return of a rental property, with or without mortgage financing.
The property
What you'd pay for the property.
Transfer taxes, title, recording, and attorney fees (typically 2-5% of price).
What you'd charge in rent each month.
Months per year you estimate it'll sit vacant between tenants.
National average is about 0.99% of value; check your county assessor for the real rate.
$0 if the property isn't part of an HOA.
Property management, tenant turnover, bad debt, etc.
Gross yield
8.80%
Net yield (cap rate): 6.29%
Effective annual income
$25,300
Annual operating expenses
$5,870
Net operating income
$19,430
Gross yield doesn't subtract expenses or taxes. Net yield (also called cap rate) does, but assumes an all-cash purchase. Cash-on-cash return is the most realistic metric if you finance with a mortgage, because it measures the return on the money you actually put down out of pocket. None of these include federal or state income tax on the rental income, which depends on your own tax situation.
Estimate calculated from the numbers you entered. This is not financial, tax, or legal advice — always consult a qualified professional before making significant financial decisions.
Scenario comparison
Try different values and click «Save this scenario» to compare them here, side by side.
What this rental property ROI calculator does
It calculates three standard real-estate-investing return metrics, from least to most precise: gross yield, net yield (also called cap rate, after subtracting operating expenses and property tax), and — if you finance the purchase with a mortgage — cash-on-cash return on the money you actually put down. It's built from the landlord's perspective: someone deciding whether a property is a good buy-and-hold rental investment, not whether it's a good place to live.
The three formulas
Gross yield
Gross yield = (Annual rent / Purchase price) × 100Net yield (cap rate)
Net yield = (Effective income − Operating expenses) / Total cash invested × 100Cash-on-cash return (if you finance with a mortgage)
Cash-on-cash = (Net income − Annual mortgage payment) / Cash invested × 100A worked example
A $300,000 property, with 3% closing costs ($9,000), rented for $2,200/month with half a month of vacancy per year and $5,870/year in expenses (property tax at the 0.99% national average, landlord insurance, and maintenance) works out to a gross yield of 8.80% and a net yield of 6.29% on a total cash investment of $309,000. Finance it instead with 20% down ($60,000) and a 6.58% 30-year fixed mortgage (a $1,529.61/month payment), and the cash-on-cash return on the $69,000 actually put down drops to just 1.56% — because most of the net operating income goes toward the mortgage payment every month. That gap between net yield and cash-on-cash is the cost (and, in a rising market, the potential upside) of leverage.
Common mistakes when estimating rental returns
- Relying only on gross yield: it's the easiest number to calculate and the one most often advertised in listings, but it's also the most optimistic, because it ignores property tax, insurance, maintenance, and vacancy that eat into the real return.
- Not budgeting for vacancy: assuming a unit stays rented all 12 months of the year is unrealistic; build in a margin for turnover between tenants.
- Forgetting closing costs:title, recording, transfer taxes, and attorney fees add to the initial investment and lower net yield if they're left out of the calculation.
- Confusing leverage with return: financing with a mortgage can boost cash-on-cash return when rent comfortably covers the payment, but it also adds risk — if rent softens or an adjustable rate resets higher, the margin can shrink fast.
Frequently asked questions
Why is net yield always lower than gross yield?
Gross yield only compares annual rent to the purchase price, without subtracting a single expense. Net yield subtracts property tax, HOA dues, insurance, maintenance, and estimated vacancy, and it also divides by the total cash invested (price plus closing costs, not just the price), so it always comes out lower — and closer to what the property actually earns.
What exactly is cash-on-cash return?
It's the return on the money you actually put down out of pocket when you finance the purchase with a mortgage: the down payment plus closing costs and loan fees, not the full price of the property. Because the mortgage supplies the rest of the capital, cash-on-cash return can end up higher or lower than net yield depending on how favorable the loan terms are relative to the rent you collect — this is the effect of leverage.
What vacancy rate should I use?
It depends on the market and the type of rental. For a traditional long-term rental in an area with steady demand, half a month per year (0.5 months) is a common conservative estimate. For short-term/vacation rentals or softer markets, use a higher vacancy allowance so you don't overstate the return.
Does this calculator account for income tax on the rent?
No. It calculates return before the landlord's income tax (rental income is generally taxed as ordinary income at the federal level, plus state income tax where it applies, though real depreciation and expense deductions typically reduce the taxable amount well below the raw cash flow). For an after-tax figure, subtract your own marginal rate separately, or talk to a tax professional — rental property taxation has enough moving parts (depreciation recapture, passive-activity rules) that it's worth getting specific advice.
What counts as a good cap rate in the US?
As a rough orientation, many investors look for cap rates somewhere in the 5-10% range, but 'good' varies enormously by market: expensive coastal metros with strong appreciation often trade at cap rates well under 5% because buyers are pricing in future value growth, not just current income, while slower-growth Midwest and Sun Belt markets frequently offer 8-10%+ in exchange for more vacancy or appreciation risk. Compare a property's cap rate to similar rentals in the same zip code, not to a single national number.
What actually moves this number
Specific levers, and roughly what each one is worth. Not “save more” — the things that change the figure above by an amount you can measure.
Price capital reserves by system age, not a percentage
A roof with eight years left and a $12,000 replacement cost is $1,500 a year, whether or not you spend it this year. Doing this for roof, HVAC, and water heater is what separates an honest projection from a lucky one.
Pull the actual tax bill and a real insurance quote
Both vary by parcel, and landlord insurance costs meaningfully more than an owner-occupied policy. On a marginal deal, the difference between a state average and the real figures decides whether it works.
Check whether leverage is positive before borrowing more
If the property nets 3.7% and the mortgage costs 6.5%, borrowing reduces your return rather than amplifying it. Positive leverage requires net yield above the borrowing rate, and in higher-rate markets that is a demanding bar.
Charge yourself a management fee even if you self-manage
Eight to twelve percent of collected rent is what the work is worth. Omitting it makes the return look better and hides the fact that you bought a job alongside the asset.
What this calculator does not cover
Every calculator simplifies, and the useful thing is knowing exactly where. These are the specific gaps between this estimate and your real situation:
- Vacancy, maintenance, and capital reserves are estimates you supply, and they are the lines first-time landlords most often understate. A roof does not fail every year, which is exactly why it gets left out.
- Property tax and insurance vary by parcel. Use the actual bill and a real quote rather than a state average for any property you are serious about.
- Net yield deliberately excludes the mortgage, because it measures the asset rather than your financing. Cash-on-cash return is the metric that includes debt service.
- Depreciation and its recapture at sale are not modeled. Residential rental property is depreciated over 27.5 years, and the IRS taxes the accumulated depreciation when you sell.
- Self-managing is not free. If you do not price your own time, you are comparing a job against a passive investment.
For anything that turns on an exact figure, use the primary sources below or a qualified professional. How these limits are decided and disclosed is described in the editorial standards.
Sources