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Rental property ROI & IRR calculator
Cash flow is only part of the return. Add loan paydown, appreciation and the sale to see total ROI and IRR over your holding period.
Return over the hold
Year-by-year projection
| Year | NOI | Debt service | Cash flow | Value | Loan balance | Equity | Sale proceeds |
|---|
ROI vs. IRR
Total ROI = (all cash received − cash invested) ÷ cash invested
IRR = the annual rate r where −cash invested + Σ cash flowt ÷ (1 + r)t = 0
Total ROI ignores timing: doubling your money in 5 years and in 20 years look the same. IRR accounts for when each dollar arrives, so it's the fairer way to compare a rental with other uses of your money. The equity multiple (total cash back ÷ cash invested) is a simple sanity check next to it.
A quick check of the math: buy a $200,000 property with cash, earn a flat $12,000 of NOI every year, and sell for $200,000 after 5 years. The IRR is exactly 6%, the same as the cap rate, because nothing grows and there's no debt. Add leverage, rent growth and appreciation (the defaults above) and the IRR changes a lot. Try lowering appreciation to 0% to see how much of the return depends on it.
Before taxes. It doesn't include depreciation deductions, or depreciation recapture and capital-gains tax at sale, which can be significant.
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FAQ
What is a good IRR for a rental property?
It depends on risk and leverage. Compare your projected IRR with what you could earn elsewhere at similar risk, and stress-test it: rerun with lower appreciation and rent growth, and higher expenses.
Why is IRR different from cash-on-cash return?
Cash-on-cash looks at one year of cash flow. IRR covers the whole hold, including loan paydown, appreciation and sale proceeds, weighted by when the money arrives.
Does this include taxes?
No. It's a pre-tax projection. Depreciation reduces taxes while you own the property, and recapture plus capital-gains tax reduce what you keep at sale.