Free tool
Rental property ROI calculator
The three numbers that actually tell you how a rental is doing: cash-on-cash return, cap rate, and return on equity, computed the way the Oberlin24 app does it.
Educational estimate, not investment advice. Principal paydown is approximated from your balance × rate; the app uses the exact amortization schedule. Confirm before making decisions.
What each number means
Cap rate = NOI ÷ value. It ignores your mortgage, so it measures the property, not the financing.
Cash-on-cash = annual cash flow ÷ cash you put in. It’s the number that answers “what is my actual cash doing this year?”
Return on equity (ROE) = the return on the equity trapped in the property today. Operations ROE counts cash flow plus the principal you pay down; total ROE adds appreciation. ROE is the one most landlords never check, and it’s how you tell whether equity that’s grown over the years is still earning its keep, or whether it’s time to sell, hold, or 1031.
For what counts as good on each of these (8% to 12% cash-on-cash, 5% to 8% cap rates, an 8% ROE bar) and the worked math behind the ranges, see what is a good ROI on a rental property.
Prefer to keep the math in a spreadsheet, or want the after-tax version with depreciation in it? The rental property ROI calculator for Excel is the same framework as a free XLSX: a size-up-a-purchase tab plus an owned-property tab that ends at return on equity.
How NOI is built, and what stays out
Every number above starts from net operating income: rent collected, minus operating expenses, before the mortgage, depreciation, and income tax. The mortgage stays out because it describes the buyer, not the building. A house has one NOI whether you paid cash or borrowed 80%, which is what makes cap rates comparable across deals.
If you file Schedule E, you already have most of it. Lines 5 through 11 and 14 through 17 (advertising through management fees, then repairs, supplies, property taxes, and utilities) are operating expenses. Add back line 12 mortgage interest, line 13 other interest, and line 18 depreciation, and keep capital improvements out entirely. The default inputs above are one real-shaped property:
| Line | Annual |
|---|---|
| Gross potential rent (12 × $3,600) | $43,200 |
| Vacancy (a 10-day gap between tenants) | ($1,200) |
| Rent collected | $42,000 |
| Property taxes | ($4,800) |
| Insurance | ($1,700) |
| Repairs and maintenance | ($2,400) |
| Management (8% of rent collected) | ($3,360) |
| Water, sewer, trash | ($540) |
| Supplies and misc | ($200) |
| Operating expenses | ($13,000) |
| Net operating income | $29,000 |
Expenses here run 31% of rent, lean because it is a newer single-family with tenant-paid utilities. The "50% rule" bakes in vacancy, a capital reserve, and older multifamily, so treat it as a screening bound, not a target. If your own ratio lands under 25%, a missing expense is a likelier explanation than a great property.
The same $29,000 tells three stories. NOI says the property is a 7.25% cap. Cash flow after $20,000 of principal and interest is $9,000. Schedule E shows only about $2,200 of taxable income, because mortgage interest (about $16,250 at 6.5% on $250,000) and depreciation (about $10,545 on a $290,000 building) are deductible and principal is not.
Two bookkeeping errors distort NOI more than any formula mistake. Expense a capital improvement as a repair, say a $12,599 unit turnover, and NOI drops by $12,599, which at a 7.25% cap understates the property's implied value by about $174,000. Book personal spending to the property and operating expenses inflate the same way. Lenders then run one more division on whatever NOI you hand them: NOI ÷ annual debt service, the DSCR. This property's $29,000 against $20,000 is a 1.45. Most DSCR and commercial lenders want 1.20 to 1.25, so at a 1.25 minimum this NOI supports up to $23,200 of annual debt service, about $1,933 a month.
Frequently asked questions
Does NOI include the mortgage payment?
No. Net operating income measures the property before any financing, so principal and interest stay out, and so do depreciation and capital improvements. That is what makes NOI and cap rate comparable across buyers: a property has one NOI whether it was bought in cash or with 80% leverage. Subtract annual debt service from NOI and you get cash flow, which depends on your loan.
How do I calculate NOI from my Schedule E?
Start from the property's Schedule E net income and add back the three lines that are not operating expenses: line 12 mortgage interest, line 13 other interest, and line 18 depreciation. Check line 14 while you are there. A capital improvement expensed as a repair understates NOI by its full cost, and at a 7.25% cap rate a $12,599 mistake is about $174,000 of implied value.
What DSCR do lenders want?
Debt service coverage ratio is NOI divided by annual principal and interest. Most DSCR and commercial lenders want at least 1.20 to 1.25. The default property on this page runs $29,000 of NOI against $20,000 of debt service, a 1.45 DSCR, so at a 1.25 minimum it could carry up to $23,200 a year, about $1,933 a month.