Rental Property ROI Calculator
Most rental investors only count the cash flow. The real return is four things at once — cash flow, appreciation, principal paydown, and tax savings. This calculator adds all four for an honest year-1 ROI.
Property & Assumptions
Year-1 ROI = cash flow + appreciation + principal paydown + tax savings, divided by cash invested.
Long-term US average is 3–4% nominal.
For estimating depreciation tax savings.
Year-1 Total Return
Total ROI = $13,746 on $77,000 invested
The four return components
A rental property earns four kinds of return. Cash-on-cash captures only the first. Total ROI captures all four — which is why properties that look "break-even" on cash flow can still produce 15–25% total returns.
1. Cash Flow
Net rental income after operating expenses and the mortgage payment. The most visible (and volatile) component.
2. Appreciation
Increase in property value. Long-term US average is 3–4% nominal. Highly market-dependent and not guaranteed — model conservatively.
3. Principal Paydown
Each mortgage payment builds equity. In year 1 of a 30-year loan, principal paydown is small (1–2% of loan balance), but it compounds — by year 10 it’s often the largest return component.
4. Tax Savings (Depreciation)
The IRS lets you deduct (price − land) ÷ 27.5 each year as a paper expense. At a 24% federal bracket, that’s real cash you keep. The calculator estimates this assuming 85% of price is the depreciable basis.
Frequently asked questions
What is ROI on a rental property?
Return on investment (ROI) on a rental measures total annual return as a percentage of the cash you invested. Unlike cash-on-cash (which only measures cash flow), ROI includes appreciation, principal paydown, and tax savings — the four wealth-building levers in real estate.
What are the four components of rental ROI?
(1) Cash Flow — net rental income after expenses and mortgage. (2) Appreciation — increase in property value. (3) Principal Paydown — the portion of each mortgage payment that builds equity. (4) Tax Savings — primarily from depreciation deductions.
How is depreciation calculated?
Residential rentals depreciate over 27.5 years on a straight-line basis. The depreciable basis is purchase price minus land value (typically 10–20% of price). Annual deduction = (Price − Land) ÷ 27.5. Tax savings = deduction × your marginal tax rate.
Why is appreciation an estimate, not a fact?
Appreciation isn’t guaranteed. Long-term US average is ~3–4% nominal. Some cities run hotter (5–8%) and some cooler or flat. Always model with conservative assumptions — and never count on appreciation alone to make a deal work.
How is principal paydown calculated?
For a fixed-rate mortgage, the principal portion of each payment is small at first and grows over time. Year-1 principal paydown is roughly 1–3% of the loan balance, depending on rate and term. The calculator runs the first 12 amortization periods to compute exactly.
Is total ROI more important than cap rate?
They serve different purposes. Cap rate is unlevered and good for comparing deals. Cash-on-cash measures the levered current return. Total ROI captures everything — but is most meaningful in years 2–10 when appreciation and principal paydown compound.
Are these tax savings guaranteed?
Depreciation is a real, codified deduction — but the actual tax savings depend on your situation (passive activity loss rules, real estate professional status, AGI limits). Consult a CPA for your specific case. The calculator gives a reasonable estimate for a non-RE-pro investor.
Related calculators
Subscribe to the PropertyDNA newsletter
New calculators, fresh market data, and rental-investing guides — sent monthly.
Run total ROI on a real address
PropertyDNA pulls real tax records, market rents, live mortgage rates, and historical appreciation — so the four return components are based on actual data, not guesses.
Analyze a real property