Real Estate ROI: Evaluating Property Investments
Investing in property is a popular way to build long-term wealth. Before purchasing a rental property or house flip, calculating your expected Return on Investment (ROI) is essential to verify if the deal is financially viable.
Cash ROI vs. Cap Rate
In property investing, ROI is often measured in two ways: Cap Rate (Capitalization Rate), which is the net operating income divided by the property price, and Cash-on-Cash Return, which compares your actual out-of-pocket investment (down payment, closing costs, renovations) to the net cash flow. A good real estate ROI typically ranges from 8% to 12% for rental properties.
Accounting for Hidden Expenses
Many real estate investments underperform because owners fail to account for maintenance costs, property management fees, vacancy rates, property taxes, and insurance. Always include a buffer for these expenses when planning. Use our calculator above to compute property ROI and evaluate returns.