How to Calculate ROI on a Rental Property
- Nate Jones, CPCU, ARM, CLCS, AU
- Oct 7
- 3 min read
Whether you’re a first-time landlord or a seasoned investor, understanding how to calculate Return on Investment (ROI) is essential for evaluating the profitability of your rental property. ROI helps you determine if your property is generating enough income to justify the costs—and if it’s worth holding onto or selling.
At Wexford Insurance, we help rental property owners protect their investments with customized insurance for all types of properties, from duplexes and triplexes to vacation cabins and short-term rentals. In this blog, we’ll walk you through how to calculate ROI and what factors to consider.
What Is ROI in Real Estate?
ROI, or Return on Investment, is a percentage that shows how much profit you’re making compared to how much money you’ve invested. It’s one of the most important metrics for real estate investors because it helps you:
Compare different properties
Evaluate long-term profitability
Make informed decisions about buying, selling, or refinancing
The Basic ROI Formula
ROI = (Annual Net Profit ÷ Total Investment) × 100
Where:
Annual Net Profit = Rental Income – Operating Expenses
Total Investment = Down Payment + Closing Costs + Renovations
Example:
Annual Rental Income: $24,000
Annual Expenses: $6,000
Total Investment: $110,000
ROI = (24,000 – 6,000) ÷ 110,000 × 100 = 16.36%
What Expenses Should You Include?
To get an accurate ROI, include all relevant costs:
Upfront Costs: Down payment, closing costs, inspection fees, renovations
Recurring Expenses: Property taxes, landlord insurance, maintenance, HOA fees, property management, utilities (if paid by you), and vacancy loss
Optional: Mortgage interest (if calculating cash-on-cash return)
Cash vs. Financed Purchases
Cash Purchase: ROI is easier to calculate and typically higher since there’s no loan interest.
Financed Purchase: You’ll need to factor in loan payments and interest. In this case, you might also calculate cash-on-cash return, which focuses on the return based on your actual cash outlay.
Tools to Help You Calculate ROI
There are many free online calculators that simplify the process. You can also use Excel or Google Sheets to track:
Monthly income
Operating expenses
Repairs and capital expenditures
Loan amortization
Why ROI Isn’t the Only Metric
While ROI is a powerful tool, it’s not the only one. Consider using:
Cap Rate: Focuses on property income vs. current market value
Cash-on-Cash Return: Measures return based on actual cash invested
Appreciation & Tax Benefits: Long-term gains and deductions can significantly boost your real return
Protect Your ROI with the Right Insurance
Even the best investment can be derailed by unexpected damage or liability claims. That’s why Wexford Insurance offers rental property insurance tailored to your needs—whether you own a condo, lake house, Airbnb, or long-term rental.
We help you protect your ROI by covering:
Property damage
Liability claims
Loss of rental income
Natural disasters (with optional flood or earthquake coverage)
Final Thoughts
Calculating ROI is key to making smart investment decisions and maximizing your rental property’s profitability. Contact Wexford Insurance today to protect your investment with tailored coverage that supports your long-term success.
FAQs
Q: What’s a good ROI for a rental property?
A: Most investors aim for 8–12%, but this varies by market and risk tolerance.
Q: Should I include mortgage payments in ROI?
A: Not in basic ROI. For cash-on-cash return, include only the cash you invested.
Q: How often should I recalculate ROI?
A: Annually, or whenever major expenses or income changes occur.
