Investment Property Calculator
Analyze rental property investments with cash flow, cap rate, cash-on-cash return, and total ROI calculations.
Results
Visualization
How It Works
An investment property calculator helps you evaluate whether a rental property will generate positive cash flow and a good return on your investment. Key metrics include Net Operating Income (NOI), cap rate, cash-on-cash return, and monthly cash flow. These numbers help you compare properties objectively and avoid buying a money-losing investment.
The Formula
Cap Rate = NOI / Purchase Price x 100
Cash Flow = NOI - Annual Mortgage Payments
Cash-on-Cash Return = Annual Cash Flow / Total Cash Invested x 100
Variables
- NOI — Net Operating Income: rental income minus operating expenses (excludes mortgage)
- Cap Rate — Capitalization rate: return if you bought all-cash, used to compare properties
- Cash-on-Cash — Annual cash flow divided by your total cash invested (down payment + closing costs)
- Cash Flow — Money left over each month after all expenses and mortgage payments
Worked Example
A $350,000 property with 25% down ($87,500), $8,000 closing costs, $2,500/month rent, $800/month expenses, and a 7% mortgage has a monthly mortgage of $1,746 on a $262,500 loan. NOI is $20,400/year, cap rate is 5.8%, monthly cash flow is -$46, and cash-on-cash return is -0.6%. This property barely breaks even.
Practical Tips
- The 1% rule is a quick screening tool: monthly rent should be at least 1% of the purchase price. Properties that fail this test rarely cash flow.
- Budget 5-10% of rent for vacancy and 10% for maintenance reserves even when the property is occupied.
- Cap rate lets you compare properties regardless of financing. A 6%+ cap rate is generally considered good in most markets.
- Cash-on-cash return shows your actual return on money invested. Aim for 8%+ to justify the risk and effort of being a landlord.
- Property management typically costs 8-10% of rent. Include this in expenses even if you self-manage, to see the true economics.
Frequently Asked Questions
What is a good cap rate for an investment property?
Cap rates vary by market and property type. In major metros, 4-5% may be acceptable because of appreciation potential. In smaller markets, investors typically target 6-10%. A higher cap rate means higher current income relative to price but often comes with higher risk or less appreciation. Compare cap rates for similar properties in the same area to determine what is competitive.
Why is my cash-on-cash return negative even though the cap rate looks good?
Cap rate measures return as if you paid all cash. Cash-on-cash return includes mortgage payments. If your mortgage payment is high relative to NOI, cash flow turns negative even with a decent cap rate. This is common when interest rates are high or down payments are small. The property may still build equity through principal paydown and appreciation, but it requires cash out of pocket each month.
What expenses should I include in my analysis?
Include property taxes, insurance, maintenance (budget 1% of home value per year), vacancy (5-10% of rent), property management (8-10% of rent even if self-managing), HOA fees, lawn care, utilities you pay, and a capital expenditure reserve for large repairs like roofs and HVAC. Underestimating expenses is the most common mistake new investors make.
How does leverage affect my returns?
Leverage (using a mortgage) amplifies returns in both directions. If the property appreciates and cash flows, your return on cash invested is higher than if you paid all cash. But if the property loses value or has negative cash flow, leverage amplifies losses. At high interest rates, leverage can turn a profitable all-cash deal into a money-losing leveraged one.
Should I factor in appreciation when deciding to buy?
Conservative investors buy for cash flow and treat appreciation as a bonus. Buying with negative cash flow and hoping for appreciation is speculation, not investing. That said, properties in growing areas with good fundamentals tend to appreciate 3-5% annually over time. Just make sure you can sustain the carrying costs if appreciation is slower than expected.