How to Calculate Real Estate Investment Returns

Learn key metrics to evaluate real estate investment opportunities.

Essential Metrics

• Cap Rate: NOI / Property Value = annual return rate
• Cash-on-Cash Return: Annual cash flow / Cash invested
• Price to Rent Ratio: Indicates if buying or renting is better
• ROI: (Profit / Investment) x 100 = percentage return

Example Calculation

Property Purchase: $300,000
Annual Rental Income: $18,000
Annual Expenses: $6,000
Net Operating Income (NOI): $12,000
Cap Rate: 12,000/300,000 = 4% (4% annual return)

What’s a Good Cap Rate?

Target 5-7% in strong markets, 8-10% in secondary markets.