Is that rental property actually a good investment? Calculate your total return including rental yield, appreciation, tax benefits, maintenance, and financing costs.
Property ROI measures the total return on a real estate investment, combining rental income, appreciation, and equity buildup. Unlike stocks, real estate returns come from multiple sources: cash flow from rent, principal paydown by the tenant's rent, and property value appreciation over time.
The key metrics to evaluate a rental property are gross yield (annual rent divided by purchase price), net yield (after all expenses), cash-on-cash return (annual net rent divided by your down payment), and total ROI which includes appreciation. A good rental property typically targets a gross yield above 7% and positive cash flow from day one.
Expenses that reduce your return include property taxes (typically 0.5-2.5% depending on state), maintenance (budget 1% of value per year), vacancy (5-8% is standard), insurance, and mortgage interest. The 50% rule suggests that operating expenses will consume roughly half of gross rent, though this varies by market.
Related tools: Rental Cashflow Calculator, Rent vs Buy Calculator, Mortgage Calculator