Rental Property Calculator (Cash Flow, Cap Rate, ROI)

How to use the rental property calculator

Fill in the whole deal:

• Purchase price, down payment and closing costs.
• Loan rate and term.
• Monthly rent and vacancy %.
• Operating expenses: property tax, insurance, repairs, capital expense reserve, management, utilities and HOA.
• Appreciation, a yearly percentage for the five-year view.

You get monthly cash flow, cap rate, cash-on-cash return and a five-year total return.

The formulas

• Net operating income (NOI) = rent x 12 x (1 - vacancy) - operating expenses
• Cap rate = NOI / price
• Annual cash flow = NOI - annual principal and interest
• Cash-on-cash return = annual pre-tax cash flow / total cash invested
• Five-year total return = (five years of cash flow + principal paid down + appreciation) / total cash invested

A worked rental property example

A three-bedroom house in a Midwest suburb:

• Price: $180,000
• Down payment: 20%, or $36,000
• Closing costs: $5,400
• Total cash invested: $41,400
• Loan: $144,000 at 7% for 30 years, so principal and interest is $958.04 a month, or $11,496 a year
• Rent: $1,700, with 5% vacancy
• Operating expenses: $7,000 a year

Year one:

• Effective rent: $1,700 x 12 x 0.95 = $19,380
• NOI: $19,380 - $7,000 = $12,380
• Cap rate: $12,380 / $180,000 = 6.88%
• Annual cash flow: $12,380 - $11,496 = $884, about $74 a month
• Cash-on-cash: $884 / $41,400 = 2.1%

Five years, assuming rent and expenses stay flat and 3% appreciation:

Source	Amount
Cash flow ($884 x 5)	$4,418
Principal paid down	$8,451
Appreciation ($180,000 to $208,669)	$28,669
Total	$41,538

That’s a 100% return on $41,400 over five years, about 14.9% a year compounded, before selling costs and taxes. Take 8% selling costs off the $208,669 sale price ($16,694) and the total drops to about $24,844, or 60%.

What a good result looks like

For a small landlord, the deal should pass three tests:

1. Cash flow is positive with every expense counted, including a capital reserve. $74 a month is positive but thin.
2. Cap rate is close to or above your borrowing rate. Here it’s 6.88% against a 7% loan, so borrowing barely breaks even.
3. The five-year return holds up at lower appreciation. At 1% a year, appreciation over five years is about $9,180 instead of $28,669. Run it.

This deal passes the first test, scrapes the second and depends heavily on appreciation for the third. A lower price or higher rent would make it much stronger.

Limits and caveats

• Flat rents and expenses. The five-year view doesn’t grow rent or costs. Both usually rise.
• Taxes aren’t modeled. Depreciation often makes a cash-flowing rental show a tax loss, while recapture and capital gains tax apply when you sell.
• Big repairs are lumpy. A $12,000 roof in year three wipes out years of cash flow. The capital reserve is there for that, so don’t skip it.
• Garbage in. The result is only as good as the expense line. Use real quotes for insurance and the actual tax bill.