How to Calculate the Return on Investment for Rental properties?
- J+A
- Feb 18
- 3 min read
Updated: Feb 23
When making your final decision on your new investment, knowing the potential return on investment
(ROI) is crucial. Whether you're buying a rental property or investing in stocks, calculating ROI helps you assess profitability and compare opportunities.
To simplify this process, we’ve created a Return on Investment Template that we use to determine the basic businesscase for purchasing a rental property. It allows us and you to quickly evaluate different investments. Download the template and follow this guide to make informed financial decisions.
What Is Return on Investment (ROI)?
ROI is a performance measure used to evaluate the efficiency or profitability of an investment. It’s expressed as a percentage and calculated using the formula:
ROI (%) = (Net Profit / Initial Investment) × 100
A higher ROI indicates a more profitable investment, while a lower ROI suggests a need for reevaluation.
Why calculating return on investment for rental properties matter?
Understanding ROI is essential because:
It helps you compare investment options. By calculating ROI for multiple investments, you can prioritize the most profitable ones.
It supports better financial planning. Knowing your expected returns allows you to allocate resources wisely.
It minimizes financial risk. By analyzing potential gains, you can avoid poor investments and optimize returns.
How to Use the ROI Template
Our Template for Return on Investment for rental properties simplifies the calculation process. Here’s how to use it:
Enter Investment Costs (value object) – Included the value of the object
Down-payments – Put here the amount that you will put in yourself. If you will use the template for stocks and you will have no loans, this amount will be the same as the value of the object
Rent / Costs – Fill in the expected rent per month and other costs like maintenance or taxes. Average rent in Europe is mostly between 5-8% of the property value, but can vary widely per city or type of property. Also maintenance depends largely on age and type of property. The type of properties we own costs us around 1,5% per year based on the value. In the US the costs are most likely a bit higher,
If you want to calculate based on stocks, keep this empty.
Expected rent increase – How much do you expect the rent to increase per year? Also this could vary a lot between countries and regions, and is largely dependend on inflation also.
Expected value increase - How much do you expect the property value to increase? Fill that percentage in the designated cell.
Opportunity fields - For comparison there is an possibility to compare the object to stock investments. The amount of cash (initial investment and possible negative cashflow) will be used for the calculation to determine the best strategy.
Download the Return on Investment Template now to start evaluating your investments effectively! -> the template is expecting that the loan of the object is being repaid within 10 years. That is unusual in the market, because it almost always lead to a negative cashflow. Most of the real estate investors will not follow this approach, because it would not allow you to snowball your investments as fast as you can. Although it is a far safer approach in our opinion, because within 10 years you will have a zero-risk property on your name with a much higher cashflow. (also who would wants to wait 30 years for it to be "free"?)
If you prefer a more cashflow positive approach, please let us know, we can publish a more dynamic version where you can determine your own period.
Ready to assess your investments with ease? Download our Return on Investment Template and make data-driven financial decisions today!
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