Key Metrics
Cap Rate
—
NOI ÷ purchase price
ROI on Down Payment
—
—
Net income + equity ÷ down payment
ROI with 2% Appreciation
—
+ annual appreciation gain
Net Operating Income
—
Gross rent − operating expenses
Cash on Cash Return (pre-tax)
—
—
How it's built
NOI − Mortgage ÷ Down Payment
Year 1 — How Your Return Is Built
Step by step from rent to total return
Annual Gross Rent
—
−Operating Expenses (CC + Taxes)
—
=Net Operating Income (NOI)
→ NOI
→ Cap Rate
—
−Annual Mortgage P&I
—
=Net Cash Flow
→ Cash on Cash
—
−Depreciation Deduction (offsets taxable income)
—
=Taxable Rental Income→ taxable
—
−Tax Owed on Rental Income
—
=Net Income After Taxes
—
+Equity Gained (Principal Paydown)
—
Total Year 1 Return
→ ROI on DP
→ ROI + Appr.
—
| Yr | Gross Rent | NOI | Cash Flow | Depr. (Annual) | Tax Impact | Net Income (After Tax) | Equity | Total Return | ROI | ROI+Appr. |
|---|
Assumptions:
NOI = Gross Rent − Common Charges − Real Estate Taxes (mortgage excluded per standard definition) ·
Depreciation = Building Value ÷ 27.5 yrs (IRS residential schedule) ·
Building Value = Purchase Price × (1 − Land %) ·
Taxable Rental Income = Cash Flow − Depreciation · When positive: tax owed at bracket rate · When negative: tax savings (passive loss, subject to IRS passive activity rules — consult a tax advisor) · Depreciation recapture tax (25%) applies at time of sale — not reflected here · Cash on Cash Return shown pre-tax per industry convention ·
Gross rent grows 2.5%/yr · Operating expenses grow 2%/yr · Mortgage P&I fixed ·
2% annual compound appreciation on full property value.
For informational purposes only — not tax or financial advice.
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