Rental ROI methodology and assumptions
ROI is measured on your cash invested — the down payment — not the full purchase price, since the rest is financed. Total profit combines cumulative cash flow over the holding period with sale proceeds net of the remaining mortgage balance, so financing, vacancy, and appreciation all flow through to the same result. The model does not add closing costs, rehab, or selling costs on top of the down payment; if you paid any of those out of pocket, add them to the down payment figure to reflect your true cash invested.
Limitations
- Assumes rent, expenses, and vacancy stay constant in nominal dollars for the full holding period — no rent growth is modeled year to year.
- Appreciation is a straight-line compounding assumption, not a market forecast; stress-test at 0% to see income-only viability.
- Closing costs, capital improvements, and selling costs (agent commission, transfer tax) are not modeled — add them to your down payment or subtract them from expected sale proceeds manually.
Other real estate calculators
The calculator above models a financed buy-and-hold rental. For a different investment shape, use one of these related, distinct tools:
- Cap rate calculator — net operating income ÷ price, an unlevered yield for comparing properties before financing.
- Cash-on-cash calculator — annual pre-tax cash flow ÷ cash invested, a year-one income yield on equity.
- Fix & flip ROI calculator — profit ÷ all-in cost for a short-cycle rehab and sale, not a long-term hold.
Explore further
- ROI calculator — the general-purpose version of this calculation.
- Real estate ROI benchmarks — reference ranges for rental yield, cap rate, and cash-on-cash.
- Cap rate vs ROI and cash-on-cash vs ROI — how these related metrics differ.
- What is ROI? — the underlying concept.