Total return on investment including cash flow, principal paydown, appreciation, and tax benefits over your full holding period.
Historical average is ~3–4% nationally
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Calculate Rental ROI
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Common questions about this calculator and how to use it effectively.
Total ROI = (Total Cash Flow + Principal Paydown + Net Appreciation − Selling Costs) ÷ Total Cash Invested. Annualized ROI uses the CAGR formula: (1 + Total ROI)^(1/Years) − 1. This calculator handles all components automatically over your specified holding period.
1. Cash Flow: Monthly rent minus all expenses and mortgage. 2. Principal Paydown: Tenants reduce your loan balance, building equity. 3. Appreciation: Property value growth over time. 4. Tax Benefits: Depreciation deductions reduce taxable income. This calculator covers the first three — add depreciation benefits for full picture. Estimate the tax impact of your rental income with our Tax Estimator.
Target 8–12%+ annualized ROI including all return components. Cash-flow markets (Midwest, South) often show 10–15%+ in cash flow and principal paydown alone. Appreciation markets (coastal cities) may show lower CoC but 12–18%+ when appreciation is included. Compare to S&P 500 historical ~10% average.
Leverage magnifies both returns and risk. A $350,000 property with 20% down ($70,000 invested) appreciating 3.5%/year gains $12,250/year on your $70,000 — a 17.5% leverage-amplified appreciation return alone. Combined with cash flow and paydown, total returns on leveraged properties often significantly exceed unleveraged returns in appreciating markets.
Longer holds generally improve annualized ROI as: (1) appreciation compounds, (2) mortgage paydown accelerates in later years, (3) rents typically rise with inflation while your fixed-rate mortgage stays constant, widening cash flow over time. Most investors see peak annualized returns in 7–15 year holds, varying by market.
This calculator shows pre-tax ROI. Depreciation (residential properties depreciate over 27.5 years on a straight-line basis — roughly 3.6% of building value annually) is a non-cash deduction that shelters rental income from taxes. Effective after-tax ROI is typically 1–3% higher than pre-tax ROI for rental property owners. Estimate the tax impact of your rental income with our Tax Estimator.
Standard selling costs run 5–8% of sale price: real estate agent commissions (5–6%), title/escrow fees (0.5–1%), and other closing costs. This calculator defaults to 6%. Also consider capital gains tax on appreciation (potentially reduced via 1031 exchange) and depreciation recapture tax (25% on accumulated depreciation). Estimate the tax impact of your rental income with our Tax Estimator.
Direct comparison is complex: stocks offer liquidity and diversification; real estate offers leverage, tax benefits, and inflation hedging. Historically, leveraged real estate in growing markets has produced 10–20%+ total returns, comparable to or exceeding stock market returns — with different risk profiles. Real estate also has much lower correlation to stock market volatility. Model dividend reinvestment returns for comparison with our DRIP Calculator. For a full retirement plan incorporating rental income, use our Retirement Calculator.
Depreciation is one of the most powerful tax benefits in real estate — and it significantly improves effective ROI. The IRS allows residential rental property to be depreciated over 27.5 years on a straight-line basis (the building value only, not land). On a $300,000 property with $240,000 allocated to the structure, that's $8,727/year in paper losses that offset your rental income — potentially eliminating your tax liability on cash flow entirely. For investors with adjusted gross income under $100,000, up to $25,000 of passive losses can offset ordinary income annually. This calculator shows pre-tax ROI — your after-tax return will be meaningfully higher once depreciation is factored in. Consult a CPA for your specific situation.