Rental Property ROI & Cap Rate Calculator (2026)

Before you buy a rental, you want one honest question answered: will this actually make money? A rental property ROI calculator helps you get past the wishful math and see the real numbers.

This tool estimates three things landlords care about most: your cap rate, your cash-on-cash return, and the net operating income (NOI) behind both. You plug in the purchase price, expected rent, operating expenses, and how you plan to finance the deal. It does the arithmetic so you do not have to wrestle with a spreadsheet.

Below the calculator, we break down what each number means in plain English, when to trust it, and the common mistakes that make a bad deal look good on paper.

What is cap rate?

Cap rate (short for capitalization rate) measures the return a property produces on its own, before any loan is involved. The formula is simple:

Cap rate = NOI ÷ purchase price

NOI, or net operating income, is your annual rental income after a vacancy allowance, minus your annual operating expenses. Operating expenses include things like property taxes, insurance, repairs, maintenance, and management. One thing NOI does not include is your mortgage payment. That is on purpose. Cap rate ignores financing entirely so you can compare properties fairly, no matter how each one is paid for.

Here is an illustrative worked example. Say you are looking at a $200,000 house that should rent for $24,000 a year ($2,000 a month). You set aside a 5% vacancy allowance, which is $1,200, leaving $22,800 in effective income. Your annual operating expenses (taxes, insurance, maintenance, and the rest) come to $8,800.

• Effective income: $22,800
• Operating expenses: $8,800
• NOI: $22,800 − $8,800 = $14,000
• Cap rate: $14,000 ÷ $200,000 = 7%

All of those figures are illustrative and rounded to keep the math clean. What counts as a strong cap rate depends heavily on your market, the property type, and how much risk you are taking on, so there is no single magic number to aim for. A higher cap rate can mean a better deal, or it can mean a riskier neighborhood, older building, or higher turnover. The number is a starting point for questions, not a verdict.

What is cash-on-cash return?

Cap rate assumes you pay all cash. Most landlords do not. Once you take out a mortgage, your actual return on the money you personally put in changes, and that is what cash-on-cash return measures.

Cash-on-cash return = annual pre-tax cash flow ÷ total cash invested

Annual pre-tax cash flow is your NOI minus your annual mortgage payments (called debt service). Total cash invested is the money you brought to the table: your down payment plus closing and upfront costs.

Let us extend the same $200,000 property, now with financing. You put 25% down, which is $50,000, and pay $10,000 in closing and upfront costs, so your total cash invested is $60,000. Your annual mortgage payments (principal and interest) add up to $11,000.

• NOI: $14,000
• Annual debt service: $11,000
• Annual pre-tax cash flow: $14,000 − $11,000 = $3,000
• Total cash invested: $50,000 + $10,000 = $60,000
• Cash-on-cash return: $3,000 ÷ $60,000 = 5%

Notice that the cap rate was 7% but the cash-on-cash return is 5%. That gap comes entirely from financing. A mortgage lets you control a $200,000 asset with far less of your own money, but it also eats into your cash flow. Depending on the loan terms and price, leverage can push your cash-on-cash return above or below the cap rate. That is why both numbers are worth looking at together.

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Cap rate vs. ROI vs. cash-on-cash: which matters for a small landlord

These three terms get thrown around like they mean the same thing. They do not. Here is how they compare.

For a small landlord buying a place you will hold for years, cash-on-cash return usually hits closest to home, because it answers the question you actually feel every month: is this property putting money in my pocket? Cap rate is the cleaner tool for comparing two listings before financing muddies the picture. ROI is the widest lens, but it depends on assumptions about the future, so treat it as a scenario, not a promise.

What the numbers leave out

Every calculator is only as good as what you feed it, and even a perfect NOI hides some real parts of owning a rental. Keep these in mind before you sign anything.

• Appreciation. The property may rise (or fall) in value over time. None of these three metrics predicts that, and no honest tool will promise you a number.
• Principal paydown. Each mortgage payment slowly buys you more equity. That is a real benefit cash-on-cash return does not capture.
• Taxes. Cash-on-cash return is a pre-tax figure. Depreciation, deductible expenses, and your own tax bracket all change what you keep.
• Big repairs. A roof, furnace, or water heater can wipe out a year of cash flow. Routine maintenance belongs in operating expenses; large capital costs are easy to forget.
• Your time. Screening tenants, chasing rent, and coordinating repairs are unpaid work. It is worth understanding the true cost of being a landlord before you assume the cash flow is free money.

If you are still weighing whether to become a landlord at all, our guide on how to decide whether to sell or rent your house walks through the trade-offs in plain terms.

Common mistakes that make a bad deal look good

Most disappointing rentals were not bad luck. They were optimistic inputs. Watch for these.

Using asking rent instead of realistic rent

The rent a listing hopes for and the rent a property actually gets can be very different. Base your numbers on what comparable units nearby are truly renting for, not the top of the range. When it is time to raise rent on a unit you already own, our rent increase calculator can help you set a fair, defensible number.

Skipping the vacancy allowance

No property is rented 100% of the time forever. Tenants move out, and units sit empty between them. Leaving vacancy out of your NOI inflates every return figure. Even a modest allowance keeps you honest.

Forgetting closing and upfront costs

Your down payment is not the only cash you bring. Closing costs, inspections, initial repairs, and getting the unit rent-ready all count as cash invested. Leave them out and your cash-on-cash return will look better than it really is.

Treating operating expenses as an afterthought

Taxes, insurance, maintenance, and management add up fast, and underestimating them is the fastest way to turn a green spreadsheet red. If you are not sure a system for tracking all of this is worth it, we cover whether landlord software is worth it in a separate guide.

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Frequently Asked Questions

What is a good ROI on a rental property?

There is no single number that counts as good, and anyone who gives you one is guessing. A strong return depends on your market, the property type, the condition of the building, and how much risk you are comfortable taking. A high return often comes with higher risk, such as an older property or a tougher rental market. Use the calculator to compare specific deals against each other and against your own goals, rather than chasing a benchmark you read online.

How do you calculate cap rate on a rental property?

Divide the net operating income (NOI) by the purchase price. NOI is your annual rental income after a vacancy allowance, minus annual operating expenses like taxes, insurance, and maintenance. It does not subtract your mortgage payment. So if a property has $14,000 in NOI and costs $200,000, the cap rate is $14,000 divided by $200,000, or 7%. That figure is illustrative.

What is the difference between cap rate and cash-on-cash return?

Cap rate ignores financing and shows the property's return as if you paid all cash. Cash-on-cash return factors in your mortgage and shows the return on just the money you personally invested. If you use a loan, the two numbers will usually differ, because leverage changes both your cash flow and how much of your own money is tied up in the deal.

Does cap rate include the mortgage?

No. Cap rate is based on net operating income, which deliberately excludes debt service (your mortgage principal and interest). That is what makes cap rate useful for comparing properties on equal footing. To see how a loan affects your actual return, look at cash-on-cash return instead.

This article is for informational purposes only and is not financial or investment advice. Every market and property is different — consult a licensed financial professional before making investment decisions.