Rental Property Calculator: Cash Flow, ROI and Cap Rate

By Skyline Capital Investments · Updated October 27, 2026

How to calculate rental property return on investment

To calculate rental property return on investment, take one year of cash flow after the mortgage, add the principal the loan paid down that year, and divide the total by the cash you invested (down payment plus closing costs). A building that puts $9,500 in your pocket and pays $4,500 off the loan on $165,000 of cash has returned about 8.5% in year one.

That single figure hides a lot, so the calculator breaks it into steps. It starts with what the building earns before any loan (net operating income), divides that by the price to get the cap rate, subtracts the mortgage payment to get cash flow, and divides cash flow by your cash to get cash-on-cash return. The last step adds principal paydown, because every mortgage payment moves part of your money from the bank’s side of the balance sheet to yours.

Each number answers a different question. NOI and cap rate describe the property. Cash flow and cash-on-cash describe the deal you made with your lender. Total first-year return describes how much wealth the building added on your cash, before appreciation and before taxes.

How to use the rental property calculator

Fill in the inputs from the top down, using real numbers from the seller’s rent roll, the tax bill and an insurance quote wherever you can. Every field is monthly or annual as labeled, so check the label before you type.

• Purchase price, down payment % and closing costs set the loan amount and the cash you invest. Cash invested is the down payment plus closing costs.
• Interest rate and loan term (years) set the monthly principal and interest payment on a standard fixed-rate loan that pays off over the full term.
• Monthly rent (all units) is the total scheduled rent for every unit at current leases, not the asking rent on a vacant unit.
• Other monthly income covers laundry, parking, storage, pet fees and utility bill-backs.
• Vacancy % is the share of income you expect to lose to empty units and unpaid rent. The calculator takes it off rent and other income to get the money you actually collect.
• Annual property tax and annual insurance are entered as yearly bills; the calculator spreads them over twelve months.
• Monthly maintenance/repairs is your average monthly spend on upkeep. Budget for it even if the building is in good shape.
• Property management % of collected rent applies the manager’s fee to rent after vacancy, which is how most management agreements charge.
• Other monthly expenses holds anything else the owner pays: water, sewer, trash, common-area electric, landscaping, snow removal, pest control, accounting.

What each result means

The calculator returns seven numbers. Read them in order, because each one builds on the one before.

• Net operating income (NOI): collected income minus operating expenses (tax, insurance, repairs, management, other). It leaves out the mortgage and any capital projects. NOI is what the building earns for whoever owns it.
• Cap rate: annual NOI divided by purchase price. A $600,000 fourplex with $40,866 of NOI is priced at a 6.81% cap rate.
• Monthly cash flow: monthly NOI minus the monthly principal and interest payment.
• Annual cash flow: monthly cash flow times twelve. This is the cash the property puts in your account in year one.
• Cash-on-cash return: annual cash flow divided by cash invested. It ignores principal paydown and appreciation and measures only the cash yield on your cash.
• Year-one principal paydown: the part of the first twelve mortgage payments that reduced the loan balance rather than paying interest.
• Total first-year return on cash invested: annual cash flow plus year-one principal paydown, divided by cash invested.

The formulas behind the calculator

All of the math is standard, and you can check any result with a spreadsheet. Here is exactly what the tool computes.

Worked example: a 4-unit and a 12-unit building

The fourplex costs $600,000. You put 25% down ($150,000), pay $15,000 in closing costs and borrow $450,000 at 7.0% for 30 years, a monthly payment of $2,993.86. The four units rent for $1,450 each, or $5,800 a month, plus $100 of laundry income. At 7% vacancy you collect $5,487 a month. Expenses are $650 a month for the $7,800 tax bill, $250 for the $3,000 insurance policy, $500 for repairs, $431.52 for management at 8% of collected rent and $250 for water and trash, a total of $2,081.52. NOI is $3,405.48 a month, or $40,866 a year, a 6.81% cap rate.

After the mortgage, the fourplex makes $411.62 a month, or $4,939 a year. On $165,000 of cash that is a 2.99% cash-on-cash return. The loan balance falls by $4,571 in year one, so the total first-year return is $9,511, or 5.76% of your cash. Most of the payment in the early years of a 30-year loan is interest ($31,355 of the $35,926 paid in year one), which is why principal paydown starts small.

The 12-unit building costs $1,560,000, or $130,000 a unit. Buildings of five or more units are financed with commercial or multifamily loans rather than home mortgages, so this one assumes 30% down ($468,000), $39,000 of closing costs and a $1,092,000 loan at 6.75% amortized over 25 years: $7,544.75 a month. Rents are $1,300 a unit, or $15,600 a month, plus $300 of laundry and parking. At 6% vacancy you collect $14,946 a month.

Expenses on the 12-unit run $2,000 a month for the $24,000 tax bill, $900 for the $10,800 insurance policy, $1,500 for repairs, $1,026.48 for management at 7% and $1,200 for owner-paid utilities, $6,626.48 in all. NOI is $99,834 a year, a 6.40% cap rate. Monthly cash flow is $774.77, or $9,297 a year, a 1.83% cash-on-cash return on $507,000. Year-one principal paydown is $17,358, so total first-year return is $26,655, or 5.26%.

Put side by side, the larger building has the lower cash-on-cash return but more than three times the dollar NOI, and the shorter 25-year amortization pays down principal faster. Its expense ratio is higher (44% of collected income against 38%) because the owner pays utilities. Neither deal is good or bad on these numbers alone. Both show how thin cash flow gets when the cap rate sits close to the interest rate.

What is a good rental property return on investment?

A good rental property return on investment is one that beats what the same cash could earn elsewhere at similar risk, after you have priced in every expense honestly. There is no fixed target, because the right figure depends on interest rates, the age and location of the building and how much work it needs.

Compare three things. First, the cap rate against your interest rate: when the cap rate is well above the loan rate, debt adds to your return; when it is at or below, debt adds risk without adding cash. Second, the debt service coverage ratio (NOI divided by annual debt service). Lenders on five-plus unit buildings usually want at least 1.20 to 1.25; the two examples above sit at 1.14 and 1.10, which a lender would push back on. Third, cash-on-cash against a safe yield such as a Treasury bill or money market fund. A building that returns less cash than a savings account is a bet on rent growth and appreciation.

Numbers that make a rental look better than it is

Most bad rental purchases start with a spreadsheet that left something out. Check these before you trust the result.

• Vacancy at zero. The U.S. Census Bureau put the national rental vacancy rate at 7.3% in the second quarter of 2026. Your market may be lower, but a full year with no turnover is rare.
• Last year’s tax bill. In many states the assessment resets when a building sells, so the buyer’s bill can be far higher than the seller’s. Use our property tax calculator to estimate the post-sale bill.
• No management fee because you plan to self-manage. Your time has a cost, and a lender or future buyer will underwrite a manager.
• Repairs left at zero on an older building. Roofs, water heaters, boilers and parking lots wear out on a schedule whether you budget for them or not. Set aside reserves for capital items on top of routine repairs.
• Pro forma rents in place of actual rents. Enter the rent roll as it stands, then run a second scenario with higher rents to see how much of the return depends on raising them.
• An adjustable-rate or interest-only loan entered as fixed. The calculator assumes a fully amortizing fixed-rate payment. An interest-only period raises early cash flow and drops principal paydown to zero.

What the calculator leaves out

This is a first-year, pre-tax snapshot, so it does not include appreciation, rent growth, capital projects, depreciation or the tax on a future sale. Those matter over a five- or ten-year hold, and an IRR model is the better tool for them.

Taxes can change the after-tax picture a lot. Under IRS Publication 527, you can deduct mortgage interest on a rental but not principal payments, and residential rental buildings are depreciated over 27.5 years under the general depreciation system. Depreciation lowers taxable income without costing cash, which is one reason rental investors look at after-tax returns as well as the figures here.

How to calculate depreciation on rental property

To calculate depreciation on rental property, take the building’s cost without the land, divide it by 27.5 years, and prorate the first year with the mid-month convention. IRS Publication 527 sets the 27.5-year recovery period for residential rental property under the general depreciation system, and Section 168 of the tax code requires the mid-month convention for it.

Start with the depreciable basis. Land never wears out, so it can’t be depreciated. Publication 527 suggests splitting the price by the ratio of building to land in the county’s assessed values if you have nothing better, such as an appraisal. Capital improvements you make later are depreciated as their own 27.5-year assets from the month they’re placed in service.

Next, find the first-year percentage. The mid-month convention treats the property as placed in service in the middle of the month it became ready and available for rent, whether or not a tenant had moved in. A building placed in service in January gets 11.5 months of depreciation in year one, or 3.485% of basis. One placed in service in December gets half a month, or 0.152%. Every full year after that is 3.636% (1 ÷ 27.5), and the last year picks up whatever is left.

Here is the fourplex from the example above. Of the $600,000 price, the county assessment puts 20% on the land, so the building basis is $480,000 (we leave out the closing costs that would add to basis, to keep the math clean). It is ready to rent in March, so year one is 9.5 months: $480,000 × 2.879% = $13,819. Each full year after that is $480,000 × 3.636%, about $17,453.

Depreciation is what turns a cash-positive rental into a tax loss. In year one the fourplex has $40,866 of NOI and pays $31,355 of mortgage interest, leaving $9,511 before depreciation. Subtract $13,819 and taxable rental income is a loss of $4,308, even though the building put $4,939 of cash in your account. Rental losses are passive, so how much of that loss you can use against your salary depends on your income: under IRS Publication 925, owners who actively participate can deduct up to $25,000, and the allowance phases out between $100,000 and $150,000 of modified adjusted gross income.

The deductions come back when you sell. Depreciation you took, or could have taken, lowers your basis, and that part of the gain is taxed at up to 25%. Our depreciation recapture calculator estimates that bill. Treat these figures as a starting point and have a CPA set up the actual depreciation schedule.

Owning a rental directly versus investing passively

Running these numbers is also a fair test of whether you want to own a building yourself. Direct ownership means you pick the property, sign the loan, carry the risk and handle the tenants or the manager. Some investors would rather hold a share of a larger apartment building through a syndication, where a sponsor runs the property and investors are limited partners.

Most syndications are open only to accredited investors, and the rules differ between Rule 506(b) offerings, which can include a limited number of non-accredited investors but cannot advertise, and Rule 506(c) offerings, which can advertise but must verify every investor’s accredited status. Any offering is made only through official offering documents to eligible investors. Read the offering documents in full and compare the sponsor’s fees and assumptions with the same metrics this calculator uses.