Real Estate ROI Calculator

real estate ROI calculator

Welcome to our Real Estate ROI Calculator. If you are considering investing in real estate, this calculator is the perfect tool to help you determine your total return on investment (ROI) over the term of your mortgage.

Simply complete the necessary inputs below to calculate your total ROI over the relevant term, both in the aggregate and on an annual basis. For comparison, the calculator also shows your alternative ROI should you instead choose to invest in the stock market.

How it Works

Our Real Estate ROI Calculator shows your total ROI under two different scenarios. Scenario 1 assumes that you purchase an investment property and contains a detailed list of inputs, including mortgage terms, monthly expenses and rental income. For comparison purposes, Scenario 2 assumes that instead of purchasing an investment property you invest in the stock market (e.g. by investing in an index fund). By showing these two alternatives, you will be better able to determine which investment will be more profitable over the investment period.

Under Scenario 1:

Basic Inputs. Basic input values include purchase price, down payment, mortgage terms (i.e. length of loan and interest rate), monthly expenses and monthly rental income.
Annual Price Growth. You will also be required to input the expected annual price growth of your investment property. We have included a default growth rate of 4% annually based on national US housing data from 1928 to 2020. For reference, Canadian housing data from 1996 to 2020 shows annual price growth of 5.7% annually. As real estate returns can vary substantially from state to state, province to province, city to city and property type to property type, national housing data may not be the most accurate measure.
Inflation. To keep things simple, we have not factored in the impact of inflation on the calculations, including rising costs and rents. For reference, you can expect rent to increase with inflation at about three percent per year.
Renovations and Other Major Improvements. While we have included a line item for general maintenance and repairs, we have not taken into account any increase in value of your investment property through major home renovations, additions or improvements. This will need to be taken into account separately.
Final Calculation Explained. After adding the corresponding values to the various inputs, the calculation shows what your investment property will be worth at the end of the loan period (including the value of net rents, if any), the net return (after factoring in your aggregate cash outlays) and ROI. In order to ensure an apples to apples comparison, the final calculation in Scenario 2 uses the same period as the investment horizon.

Under Scenario 2:

Basic Input. As most of the inputs are contained in Scenario 1, you will simply need to choose an expected annual return rate for your investment. Using the same date ranges above for US and Canadian housing data, US large-cap stocks returned 9.8% annually over such period and the TSX composite index rose 8.0% annually. We’ve included the lower of the two as the default rate.
Contribution Amount. Given that Scenario 2 is provided primarily for comparison purposes, we have assumed that only out-of-pocket amounts under Scenario 1 would be invested. For instance, the initial down payment and monthly cash outflow (if any) under Scenario 1 would then become the contribution amount under Scenario 2. If, on the other hand, you are cashflow positive under Scenario 1 after factoring in your expected rental income, then we have assumed that you would not be making any monthly contributions under Scenario 2.
Use of Tax Sheltered Accounts. Keep in mind that, by utilizing a tax sheltered account such as 401K plans in the United States or RRSP/TFSA in Canada, you may be able to reduce the tax burden and increase your overall return as a result. For comparison, you will also need to factor in any tax consequences under Scenario 1, including capital gains tax.
Trading/Management Fees. The calculator does not take into account any trading or management fees. Similarly, the calculator doesn’t factor in real estate commissions or sales taxes under Scenario 1 in the event you choose to sell your property.
Final Calculation Explained. After adding the corresponding values to the various inputs, the calculation shows what the value of your stock market investment will be worth at the end of the term (i.e. the loan period under Scenario 1), the net return (after factoring in your aggregate cash outlays) and ROI.

Be sure to explore our other calculators here.