Calculate total return on real estate investments including cash flow, appreciation, principal paydown, and tax benefits.
Total return on a rental property comes from four places: the rent left over after expenses and the mortgage, growth in the property's value, the portion of each mortgage payment that reduces the loan balance, and the tax value of depreciation. This calculator projects each stream over your holding period and divides the sum by your cash invested to give one total ROI percentage. The surprise is usually the mix: with a leveraged purchase, appreciation and principal paydown often dwarf cash flow, and much of that total return is equity you only realize when you sell.
A concrete input and expected output from the current implementation.
Input
Purchase price $200,000; down payment $50,000; mortgage $150,000 at 6% for 30 years; monthly rent $1,800; monthly operating costs $550 (taxes, insurance, vacancy, maintenance, management); 3% annual appreciation; 1-year horizon; 22% marginal tax rate; building value 80% of purchase price.
Expected output
Year-1 total return: $13,330, or about 26.7% on the $50,000 invested. Cash flow: $1,800 rent minus $550 costs minus $899 mortgage payment, about $4,208 a year. Appreciation: $6,000 (3% of $200,000). Principal paydown: about $1,840 (first-year amortization on the 6% loan). Tax benefit: $5,818 depreciation ($160,000 over 27.5 years) at 22%, about $1,280.
Each component follows from the stated inputs: the $899 monthly mortgage payment is the 6%, 30-year payment on $150,000; the first-year paydown is the amortization schedule's interest-to-principal split; and depreciation is 80% of the purchase price written off over the 27.5-year residential schedule. Dividing the $13,330 sum by the $50,000 down payment gives 26.7%; only the $4,208 cash flow is money actually collected.
Each return source is estimated separately for the holding period: net cash flow from rent minus operating costs and the mortgage payment, appreciation on the property value, the principal paid down through amortization, and the tax value of the depreciation deduction. The four are added and divided by the cash invested, typically the down payment plus closing costs, to express the result as a total ROI percentage.
Appreciation compounds on a growing property value, while amortization shifts from mostly interest in year one to mostly principal by year 20, so paydown accelerates. A one-year projection leans heavily on appreciation and leaves most of the loan work undone, while a ten-year horizon stacks compounding and cumulative paydown. Run the same inputs at different holding periods and the ROI moves.
Both, but they measure different things. The $4,208 a year you collect on your $50,000 down payment is a cash-on-cash return of about 8.4%. The 26.7% total return also counts $6,000 of appreciation and $1,840 of loan paydown, which are locked in the property until you sell or refinance, minus sale costs.
Only if you can use the deduction. Rental losses are passive, so the $5,818 depreciation shelters rental income, but the $25,000 special allowance for active participants phases out between $100,000 and $150,000 of adjusted gross income, and losses beyond that are deferred. The deduction is also recaptured at sale, up to 25% for residential rental property, so treat it as tax deferral.
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