What is a good cap rate for rental property?

A 'good' cap rate depends on the market, but residential rentals commonly target 5–10%. Lower cap rates (3–5%) are typical in high-appreciation metros; higher cap rates (8%+) often signal more risk or older properties needing capex.

What is the difference between cap rate and cash-on-cash return?

Cap rate ignores financing — it's NOI divided by purchase price. Cash-on-cash return divides annual pre-tax cash flow (after mortgage payments) by the actual cash you put in, so it reflects leveraged returns.

How do I calculate total ROI over a hold period?

Add cumulative cash flow + equity at exit (sale price minus loan balance and selling costs) minus your initial investment, then divide by initial investment. RealCalc projects this automatically across your chosen hold period.

Investor guide

How to calculate rental property ROI

Rental property ROI tells you whether a deal will actually make you money. This guide walks through the three numbers every investor should run before making an offer — cap rate, cash-on-cash return, and total ROI — using the exact formulas powering the RealCalc analyzer.

1. Start with Net Operating Income (NOI)

NOI is the annual income a property generates after operating expenses, but before mortgage payments. It is the foundation of every real-estate return metric.

NOI = (Gross annual rent × (1 − vacancy %)) − operating expenses

Operating expenses include property tax, insurance, HOA, maintenance, and property management. Mortgage principal and interest are not operating expenses — they're financing costs.

2. Cap rate — the unlevered yield

Cap rate compares NOI to purchase price. It's how investors compare deals apples-to-apples, ignoring how each buyer finances them.

Cap rate = NOI ÷ Purchase price

On a $450,000 property generating $27,000 NOI, the cap rate is 6.0%. Most US residential rentals trade in the 5–10% range; lower cap rates usually mean a hotter appreciation market.

3. Cash-on-cash return — your leveraged yield

Cash-on-cash (CoC) measures the return on the actual cash you put in. Because most investors use a mortgage, CoC is usually the more relevant number for personal-portfolio decisions.

CoC = Annual pre-tax cash flow ÷ Total cash invested

Annual cash flow = NOI − annual mortgage payments.
Total cash invested = down payment + closing costs + upfront repairs.

Example: $450,000 purchase, 20% down ($90,000) + $13,500 closing = $103,500 invested. NOI of $27,000 minus $21,000 mortgage = $6,000 cash flow. CoC = 5.8%.

4. Equity build-up and appreciation

Beyond cash flow, two silent wealth drivers compound every month: your tenant pays down the loan balance, and the property (usually) appreciates. RealCalc projects both year-by-year.

Equity at exit = Projected value − Remaining loan balance − Selling costs

5. Total ROI over your hold period

The complete picture combines cash flow, principal paydown, and appreciation across however long you plan to hold.

Total ROI = (Cumulative cash flow + Equity at exit − Initial investment) ÷ Initial investment

A 10% cap rate looks great on paper, but a 5% cap rate in a market appreciating 4%/year can easily produce a higher total ROI. Always model the full hold period.

Skip the spreadsheet

Every formula above is wired into the free RealCalc investor analyzer. Plug in purchase price, rent, expenses, and your hold period — and watch cap rate, cash-on-cash, equity build-up, and total ROI update in real time.

Open the rental property calculator