Real Estate ROI Calculator
Property returns come from four separate sources, and quoting one of them as "the return" is how most amateur property analysis goes wrong.
The Four Components
| Source | What it is | Typical annual contribution |
|---|---|---|
| Cash flow | Rent minus every expense | 0–6% of equity |
| Appreciation | Market price growth | 3–5% of *property value* |
| Amortisation | Tenant paying down your loan | 1–3% of equity |
| Tax treatment | Depreciation offsetting income | Varies widely |
Leverage Cuts Both Ways
On a $300,000 property with $60,000 down, a 5% price rise is $15,000 — a 25% return on your equity. A 5% fall is the same 25% in the other direction, and unlike a stock position the mortgage payment continues regardless.
The Expenses Amateurs Omit
Gross rent is not income. The recurring ones are obvious; these are the ones missing from most spreadsheets:
- Vacancy — 5–10% of gross rent as a planning assumption, not zero.
- Maintenance — commonly 1% of property value annually, lumpy in practice.
- Capital expenditure — roof, boiler, windows. Amortise them monthly or they arrive as a
- Management — 8–12% of rent, and if you self-manage, that is your unpaid labour.
- Insurance and property tax, both of which have risen sharply in many markets.
The Metrics, and What Each Ignores
``
cap rate = net operating income ÷ property value (ignores financing)
cash-on-cash = annual pre-tax cash flow ÷ cash invested (ignores appreciation)
total ROI = all four components ÷ cash invested (ignores liquidity)
`
Cap rate compares properties independent of how they are financed. Cash-on-cash tells you
what actually lands in your account. Neither is "the" return.
What No Calculator Prices
Illiquidity — selling takes months and costs 6–10% in fees. Concentration — one asset in one
street in one city. And time: property is a business, not a security, and the hours are
real even with a manager.
The Projection Behind This Page
Starting from $10,000, adding $200 a month at 7%:
| Year | Deposited | Balance | Growth | Growth on deposits |
|---|---|---|---|---|
| 1 | $12,400 | $13,201 | $801 | 6% |
| 5 | $22,000 | $28,495 | $6,495 | 30% |
| 10 | $34,000 | $54,714 | $20,714 | 61% |
| 20 | $58,000 | $144,573 | $86,573 | 149% |
After 20 years, 60% of the balance is growth rather than money you
put in. That crossover — the point where returns exceed contributions — is the whole reason
compounding is worth waiting for, and it arrives later than most people expect.The Formula
`
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) ÷ (r/n)]
└── initial principal ──┘ └────── regular contributions ──────┘
``
The second term usually dominates. On these numbers the $200 monthly contribution accounts for the larger share of the final balance, which is the practical lesson: how much you add matters more than the rate, right up until the balance gets large.