Key takeaways
- A financed rental pays four ways: cash flow, loan paydown, appreciation, and tax benefits.
- First-year total ROI = (cash flow + principal paydown + appreciation) ÷ cash invested.
- Cap rate and cash-on-cash are subsets of the picture — this rolls them together.
- Appreciation is upside, not guaranteed cash — judge the deal on cash flow first.
What is rental property ROI?
Rental property ROI is your first-year total return — cash flow plus loan paydown plus appreciation — divided by the cash you invested. A financed rental earns on several fronts at once, and this calculator rolls them into one number.
Worked example
Using the defaults — a $300,000 property, 25% down at 7% over 30 years, $2,400 rent, $600 monthly expenses, $7,000 closing, and 3% appreciation:
- Monthly cash flow ≈ $303 (about $3,637/yr)
- Cap rate 7.2% · cash-on-cash 4.4%
- Year-1 principal paydown ≈ $2,286
- Year-1 appreciation: $300,000 × 3% = $9,000
- Total ROI: ($3,637 + $2,286 + $9,000) ÷ $82,000 = 18.2%
Notice how loan paydown and appreciation more than triple the cash-only return — and how much of that 18.2% rests on the (unguaranteed) appreciation assumption.
The four ways a rental pays you
| Return source | What it is |
|---|---|
| Cash flow | Rent left after expenses and mortgage |
| Loan paydown | Your tenant retires your principal |
| Appreciation | Estimated rise in value (upside, not guaranteed) |
| Tax benefits | Depreciation and write-offs (not modeled here) |
Long-run U.S. home prices have risen mid-single-digits per year on average, but returns vary widely by market and year — see the FHFA House Price Index. Treat any appreciation input as a scenario, not a promise.
Frequently asked questions
What's a good rental ROI?
Many target 8%–12% cash-on-cash; total ROI is usually higher once paydown and appreciation are added.
Why is total ROI higher than cash-on-cash?
Cash-on-cash counts only cash flow; total ROI also credits principal paydown and appreciation.
Is appreciation guaranteed?
No — it's an estimate. Evaluate the deal on cash flow first and treat appreciation as upside.
How is cap rate different here?
Cap rate is NOI ÷ price and ignores your loan; it's one input to the bigger ROI picture.
Should I count tax benefits?
They're real (depreciation, write-offs) but not modeled here, since they depend on your tax situation. They add to the returns shown.
What cash counts as invested?
Down payment plus closing costs (and rehab, if any) — the out-of-pocket cash to acquire the property.