How to Calculate ROI on a Rental Property (All Four Ways)
Ask "what's the ROI on this rental?" and you'll get four different right answers. Real estate returns come from several sources at once — cash flow, appreciation, loan paydown and tax treatment — so a single percentage never tells the whole story. Here are the four that matter.
1. Cash-on-cash return
Annual pre-tax cash flow divided by the total cash you put in (down payment, closing costs, rehab). It answers: what is my money earning right now? Fast, honest, and the metric most investors live by.
2. Cap rate
Net operating income divided by price, ignoring financing. It answers: how does this property compare to others, independent of how you borrow. Use it to screen and compare, not to judge your personal return.
3. Total return (the one people forget)
Cash flow is only part of the picture. Add the principal your tenant pays down each year and any appreciation, then divide by cash invested. This is usually far higher than cash-on-cash — and it's why real estate builds wealth even when monthly cash flow looks modest.
A property with $2,000 of annual cash flow might also build $4,000 of equity through loan paydown and $6,000 through appreciation. Judging it on cash flow alone misses two-thirds of the return.
4. IRR — the tie-breaker over time
Internal rate of return blends every dollar in and out — purchase, yearly cash flow, and the eventual sale or refinance — into one annualized figure that respects when the money moves. It's the fairest way to compare a rental against another investment over a full hold period.
Which one should you use?
Screen with cap rate. Sanity-check the monthly with cash-on-cash. Judge the wealth-building with total return. Compare across a hold with IRR. Serious investors look at all four — because a deal can look great on one and mediocre on another.
Skip the manual math. The EYRIE Deal Analyzer App computes all four automatically and grades any deal 0–100 with a BUY / NEGOTIATE / PASS verdict. See it on Etsy →