Rental Property ROI Calculator
Two returns, and they answer different questions. A $350,000 rental collecting $2,800 in rent, with a 5% vacancy allowance, produces $23,520 of net operating income, so the cap rate is 7%. After the mortgage, $3,720 a year is left, which on $87,500 of cash invested is a 4% cash-on-cash return.
On this page
Two returns, two questions
cap rate = net operating income ÷ purchase price
cash-on-cash = (net operating income − mortgage) ÷ cash invested
Cap rate ignores the mortgage entirely. That is not an oversight, it is the definition: stripping out the financing is what makes two buildings comparable when one was bought with cash and the other with 80% leverage. It is a measure of the property.
Cash-on-cash divides what is left after the mortgage by the money you actually put in. It is a measure of your deal. The same building produces a different cash-on-cash for every buyer, depending on what they paid down and what rate they got.
Where the mortgage sits, and why it is a separate box
Operating expenses on this page exclude the mortgage. Tax, insurance, management, repairs and association dues go in the expenses row; principal and interest go in their own. That separation is what allows both returns to be computed from one set of inputs without double-counting, and it is the arrangement every published definition uses.
The vacancy allowance is visible on purpose
Rent is reduced by the vacancy percentage before anything else happens. Five percent is a common default and is the only such figure in the published market with a lender behind it, which makes it a reasonable placeholder and not a fact about your street.
A single-family house in a tight market with a long-term tenant can run below it for years. A small multi with turnover every twelve months, two weeks empty each time and a letting fee, will not. It is a slider because the honest answer is that you know your market and this page does not.
Why the returns are whole percentages
The inputs move in steps of fifty dollars and one percent. Printing a return to three decimals from figures that coarse would suggest a precision that is not there. Take the shape of the answer from this page and the decimals from a spreadsheet with real quotes in it.
What is deliberately missing
- Appreciation. No defensible default exists, and the assumption would drive the answer more than any real input.
- Principal paydown, which is a return that shows up in equity rather than in cash flow.
- Depreciation and the tax treatment of all of it, which depends on your whole return.
- Capital expenditure. A roof is not an operating expense, it is a number you set aside for and then spend all at once.
Those four are what separate an adequate ten-year return from a good one. None can be honestly defaulted, so none is invented here. A calculator that quietly supplies all four is not more useful, it is more confident.
What the cash return does as rent moves
| Gross rent | On a $300,000 | On a $350,000 | On a $400,000 |
|---|---|---|---|
| $2,200 | -4% | -4% | -4% |
| $2,500 | 0% | 0% | 0% |
| $2,800 | 4% | 4% | 4% |
| $3,100 | 8% | 8% | 8% |
| $3,500 | 13% | 13% | 13% |
Frequently asked questions
What is the difference between cap rate and cash-on-cash?
Cap rate is net operating income over the purchase price and ignores the mortgage entirely, which is what makes two buildings financed differently comparable. Cash-on-cash divides what is left after the mortgage by the cash you actually put in, which is what your own money earned. The first values the property, the second values your deal.
Why are the returns shown as whole percentages?
Because the inputs are sliders in steps of fifty dollars and one percent, and printing a return to three decimals from figures that coarse would suggest a precision that is not there. Take the shape of the answer from this page and the decimals from a spreadsheet with real quotes in it.
Is 5% the right vacancy assumption?
It is a common one and the only figure in the published market with a lender using it, but it is a national placeholder. A single-family house in a tight market with a long-term tenant can run below it for years; a small multi with turnover every twelve months will not. It is a slider for that reason.
What is missing from this?
Appreciation, principal paydown, depreciation and the tax treatment of all three, plus capital expenditure such as a roof. Those are the numbers that separate an adequate return from a good one over ten years, and none of them can be honestly defaulted, so none of them is invented here.
Sources
- Ridge Street Capital, DSCR and rental underwriting with a 5 percent vacancy allowance, retrieved 2026-08-24
Last updated: August 25, 2026