How do I calculate ROI on a property?
Want the Real ROI on Your Next Property? Calculate It in 5 Minutes
Fast answer
ROI on a property = (Net Gain ÷ Total Investment) × 100. For real estate, that means combining rental cash flow, appreciation, and subtracting costs. Use three metrics: cap rate, cash-on-cash return, and total (sale) ROI. Clear, simple, repeatable.
Step-by-step ROI formula you can use today
- Gather numbers
- Purchase price
- Down payment and closing costs (your cash invested)
- Annual rental income
- Annual operating expenses (taxes, insurance, maintenance, management)
- Annual mortgage payments (if any)
- Expected sale price, selling costs (commissions, repairs)
- Calculate Net Operating Income (NOI)
- NOI = Annual rental income − Annual operating expenses
- This ignores mortgage. Use for cap rate.
- Calculate Cap Rate (market quick check)
- Cap rate = (NOI ÷ Purchase price) × 100
- Use to compare market value and risk. Higher cap = higher return, usually more risk.
- Calculate Cash-on-Cash Return (real investor focus)
- Annual cash flow = NOI − Annual mortgage payments
- Cash-on-cash = (Annual cash flow ÷ Cash invested) × 100
- Shows real-yearly return on the cash you put in.
- Calculate Total ROI at sale (full investment picture)
- Total proceeds = Sale price − Selling costs − Remaining mortgage
- Total profit = Total proceeds + Cumulative cash flow − Initial cash invested
- Total ROI = (Total profit ÷ Initial cash invested) × 100
Quick example (numbers you can reuse)
- Purchase price: $400,000
- Down payment & closing: $80,000
- Annual rent: $36,000
- Annual expenses: $10,000
- Annual mortgage payments: $20,000
NOI = 36,000 − 10,000 = 26,000 Cap rate = 26,000 ÷ 400,000 = 6.5% Annual cash flow = 26,000 − 20,000 = 6,000 Cash-on-cash = 6,000 ÷ 80,000 = 7.5%
If you sell in 5 years at $480,000 with $30,000 selling costs and $300,000 mortgage remaining, add cumulative cash flow (~30,000) and compute total ROI: Total proceeds = 480,000 − 30,000 − 300,000 = 150,000 Total profit = 150,000 + 30,000 − 80,000 = 100,000 Total ROI = 100,000 ÷ 80,000 = 125% over 5 years (about 22.5% annualized)
How to use these numbers
- Use cap rate to compare markets quickly.
- Use cash-on-cash to see yearly cash performance for leveraged deals.
- Use total ROI to measure wealth creation including appreciation and paydown.
- Run conservative scenarios: lower rent, higher expenses, slower appreciation.
Closing: a no-nonsense offer
You don’t need fancy models. Use these formulas, plug real numbers, run three scenarios (pessimistic, realistic, optimistic). If you want a local market read and a custom ROI model for a specific property, reach out. I provide clear ROI projections and resale value estimates you can trust.
Contact: Tony Sousa, Local Realtor — tony@sousasells.ca | 416-477-2620 | https://www.sousasells.ca
Start with the numbers. Make decisions with clarity.
