Short answer: Rental property ROI is your total yearly return divided by the cash you put in. Add the year's cash flow, the principal your payments knock off the loan, and the rise in the home's value, then divide by your down payment plus closing costs.
It uses the same formulas as FirstDoor's full deal score.
How rental property ROI works
Owning a rental pays you in four ways. This calculator adds up the first three for year one:
| Cash flow | Rent minus every operating cost and the mortgage payment. |
| Loan paydown | The principal part of your payments. The tenant's rent pays down your loan, which builds equity. |
| Appreciation | The rise in the home's value. You only collect it when you sell or refinance, and prices can fall. |
| Tax benefits | Left out here to keep it simple. See rental property depreciation. |
ROI = (annual cash flow + loan paydown + appreciation) ÷ (down payment + closing costs)The 5-year annualized return asks: if you sold after five years at the appreciated price, what yearly rate turns your cash invested into your equity plus five years of cash flow? It keeps rent and expenses flat and ignores selling costs, so treat it as a rough guide.
Worked example: the typical US home
The defaults are a home at the US median value of $360,600 renting for the US median 3-bedroom gross rent of $1,677/mo (Census ACS 2024), with 20% down on a 30-year loan at 7.40% (Freddie Mac PMMS, week of 2026-10-15) and the US median property tax of $3,211/yr (0.89% of value).
| Cash flow (year 1) | −$12,481 |
| Loan paydown (year 1) | $2,712 |
| Appreciation at 3.4% | $12,260 |
| Total return (year 1) | $2,491 |
| Cash invested ($72,120 down + $10,818 closing) | $82,938 |
| Year-1 ROI on cash invested | 3.0% |
| 5-year annualized return | 1.9% |
The total return is positive only because of appreciation. Cash flow is −$1,040 a month, so you would pay every month to own this home and hope prices keep rising. That is why FirstDoor scores cash flow first: you can see the full deal in the deal calculator with these numbers.
Where the defaults come from
Price, rent and property tax are US medians from the Census Bureau's 2024 American Community Survey. The rate is the Freddie Mac 30-year average. Appreciation is 3.4%, the 20-year annualized change in the FHFA All-Transactions House Price Index for the US (Q2 2006 to Q2 2026). That period includes the housing crash, when the index fell about 19% from early 2007 to mid-2012. Insurance (0.5% of value), closing costs (3%), vacancy (5%), maintenance (5%) and management (8%) are FirstDoor assumptions, the same ones used on our market pages, not local data. Replace every default with your own numbers.
Frequently asked questions
How do you calculate ROI on a rental property?
Add one year of cash flow, loan paydown (the principal part of your mortgage payments) and appreciation. Divide that total by the cash you invested: down payment plus closing costs. Multiply by 100 for a percentage.
How is ROI different from cash-on-cash return?
Cash-on-cash return only counts cash flow. ROI also counts loan paydown and appreciation, which build wealth but do not put money in your pocket until you sell or refinance.
Where does the default appreciation rate come from?
It is 3.4% a year, the 20-year annualized change in the FHFA All-Transactions House Price Index for the US from Q2 2006 to Q2 2026. It is a national average, not a forecast. The same index fell about 19% from early 2007 to mid-2012, so try 0% to see the deal without it.
What is a good ROI on a rental property?
There is no official benchmark. Look at where the return comes from: a deal that only works because of appreciation can cost you money every month. FirstDoor treats 8% or more cash-on-cash as strong for a first rental.
What does this calculator leave out?
Tax benefits such as depreciation, rent and expense growth, big repairs, and the cost of selling. The 5-year figure assumes you sell at the appreciated value with no selling costs, so real results will be lower.