How the calculator works out the return
The calculator lays the rental out month by month. At closing you pay the down payment and closing costs. Every month after that, rent comes in after vacancy, while the mortgage payment, taxes, insurance, HOA and upkeep go out. In the sale month the home sells at its grown value, selling costs come off, and the loan is paid off.
The headline is the internal rate of return (IRR) on those dated cash flows: the yearly rate at which everything you paid in grows into everything you got back. Because it counts the sale, a rental with thin monthly cash flow can still post a solid IRR, and one with strong cash flow can post a weak IRR if the home loses value.
The opening example
The calculator opens on a $300,000 home bought with 25% down at a 6.75% mortgage rate, renting for $2,200 a month. After 5% vacancy that is $2,090 of effective rent, and month one nets $56 once the $450 of taxes, insurance and HOA and the upkeep are paid. At 3% a year the home sells for $403,175 in year 10, and the IRR across the whole hold comes to 11.4% a year.
Four numbers for one rental
Each figure in the results card answers a different question about the same deal. Here they are on the opening example.
| Monthly cash flow | Rent after vacancy, less the mortgage payment and running costs, in month one | $56 |
|---|---|---|
| Cash-on-cash return | The first year of cash flow over the cash put in at closing | 1.1% |
| Cap rate | A year of rent after vacancy, less taxes, insurance, HOA and upkeep, over the price | 6.1% |
| IRR | Every dated cash flow across the hold, sale included, as one yearly rate | 11.4% |
Cash flow and cash-on-cash tell you whether you can carry the property. Cap rate compares properties before financing, which is why lenders and appraisers quote it. IRR is the only one of the four that counts the sale, so it is the one that says whether the whole deal paid.
How to check the average rent in an area
Most people take rent from a single listing, and one listing is a thin sample. Pull asking rents for homes with the same bedroom count within a mile or so that leased in the last few months, and use the middle of that range. A listing that sat for weeks was priced high, so lean on the ones that rented quickly.
Then take vacancy off. A 5% vacancy rate is about 18 empty days a year, a common default for a long-term rental in a steady market; raise it for a home that will turn over often. The Good Investment Property Hub shows median and average rent for the home's market beside its score, and Investor Return starts from a rent estimate for the address.
Where the return comes from
On the opening example, $200 more rent a month moves the IRR from 11.4% to 13.8%. Moving home value growth from 0% to 6% a year moves it from 5.1% to 16.4%. Over a 10-year hold the sale is the largest cash flow on the schedule, and growth sets its size.
Growth is also the input you can least look up. Good Investment ranks a home for appreciation against the homes around it in its own market, with a confidence flag, so the growth rate you type here can start from the address. With a credit or a plan, Investor Return runs this same model on the listing and lets you set growth from the local market's long-run pace. For how to weigh the two sources of return, see cash flow versus appreciation, and for the short-term case, Airbnb versus a long-term rental.