Rental Property ROI

How It’s Calculated

Cash Flow = Rental Income − (Mortgage + Taxes + Insurance + Maintenance + Vacancy)
Cap Rate = Net Operating Income / Property Value
Cash-on-Cash Return = Annual Cash Flow / Total Cash Invested

Each metric answers a different question — monthly cushion, unleveraged yield, and return on the cash you actually put in.

Example

A $400,000 rental generating $2,800 per month in rent with $2,200 per month in total expenses nets $600 per month in cash flow — a 7.2% cash-on-cash return on a $100,000 down payment, before appreciation is even factored in.

What’s a good cap rate for a rental property?

Cap rates vary widely by market, but 5% to 8% is often considered a reasonable range in many North American markets. Higher usually signals higher risk or a less competitive market.

Does cash flow include mortgage principal paydown?

No — cash flow is the leftover cash after all expenses including the full mortgage payment. Principal paydown is a separate, real form of return that builds equity even in a break-even cash flow scenario.

How does vacancy rate affect ROI?

Even a modest 5% to 8% vacancy assumption meaningfully lowers effective annual rental income, which is why it should always be built into the cash flow calculation rather than assuming 100% occupancy.