Whether you’re evaluating a new opportunity or checking in on your current portfolio, one thing every rental property owner should understand is how to calculate return on investment for rental property. ROI is a quick way to measure how your investment is performing—and where there’s room to improve.
This guide breaks down the basics and gives you examples to help you calculate ROI with confidence.
Return on investment (ROI) measures how much profit you’re making compared to what you’ve spent. It’s usually shown as a percentage and helps you evaluate how well your property is performing financially. The higher the ROI, the more profitable the investment.
ROI takes into account more than just the purchase price. It includes things like closing costs, repairs, ongoing maintenance, property management fees, and other expenses.
A basic ROI formula looks like this:
ROI = (Net Profit ÷ Total Investment) × 100
So if you make $10,000 in profit on a $100,000 investment, your ROI is 10%.
Your ROI acts like a report card for your rental property. It shows how much money you’re making relative to your investment and can help you decide whether to buy, sell, or hold a property.
Knowing your ROI helps you:
Even if you’re only renting out one home, tracking ROI gives you a clear picture of how much value you’re actually getting from your investment.
At first glance, ROI might seem like a simple formula, but in real estate, there are several factors that can make the calculation a bit trickier. Real estate has a lot of moving parts:
Because of this, using a reliable method (and keeping your numbers up to date) is key.
There are two common ways to calculate ROI:
This is the simpler scenario. Here’s how it works:
Let’s say you:
Your total investment is $310,000.
Now, let’s say the rent is $2,000/month, giving you $24,000 in annual rental income. Subtract $5,000 in expenses, and your annual net profit is $19,000.
ROI = (Net Profit ÷ Total Investment) × 100
ROI = ($19,000 ÷ $310,000) × 100 = 6.13%
In this case, your return on investment is 6.13%.
Calculating ROI becomes more complicated when financing is involved. Here's what you need to include:
For this scenario, let’s say:
After subtracting mortgage and other expenses from your rental income, you calculate your annual net income.
Then use the same formula:
ROI = (Annual Net Profit ÷ Total Cash Invested) × 100
This version shows your ROI based on your actual cash out of pocket, not the entire property price.
Both give you valuable insight but make sure to compare apples to apples when looking at different properties.
There’s no one-size-fits-all number when it comes to a good return on investment. However, many real estate investors use a benchmark of 8% to 12% ROI as a general target for long-term rental properties. This range typically reflects a healthy balance between income generation and risk.
That said, what qualifies as a strong ROI can vary based on several factors:
In short, a “good” ROI depends on your specific investment strategy. A slightly lower return might be acceptable if the asset is in a desirable location with strong appreciation potential, minimal vacancy risk, or stable long-term tenants.
Working with a professional management company like Real Property Associates can boost your ROI by:
If your ROI isn’t where it should be, a good property manager can help you turn things around.
Seattle property management professionals help investors calculate and maximize ROIs for every rental property. An accurate estimate of your ROI can give you a baseline of the success of your real estate portfolio. If you're not sure about the math or how to improve the returns on a property that isn't performing well, Real Property Associates is here to help!
Use our free ROI Calculator: A Step-by-Step Guide to Calculating the Return on Investment For Your Rental Property, today to understand rental property ROIs!