Property guide

Rental Property ROI Formulas: NOI, Cash Flow, Yield, and Cash-on-Cash

Understand what each rental metric includes, what debt service changes, and where an educational estimate stops.

Practical guide · 7 min read

Rental metrics answer different questions. Mixing debt service into NOI or comparing a leveraged cash-on-cash return with an unleveraged yield can make a weak estimate look precise. This US/USD guide is educational only and is not investment, lending, tax, or legal advice.

1. Scheduled and effective income

Gross scheduled income is monthly rent plus other recurring monthly property income. Effective income subtracts the modeled vacancy loss:

effective income = scheduled income × (1 − vacancy rate)

2. NOI excludes debt service

Net operating income subtracts recurring property-level operating expenses from effective income. In this calculator those inputs include property tax, insurance, maintenance, management, owner-paid utilities, HOA, and other operating costs.

NOI = effective income − operating expenses

NOI does not subtract the mortgage payment. It also does not estimate depreciation or income tax.

3. Debt service is principal and interest

The fixed-rate payment uses loan principal, monthly interest rate, and the total number of monthly payments. When interest is zero, payment is principal divided by months. When loan principal is zero, payment is zero. Taxes and insurance remain in operating inputs instead of being hidden in the loan result.

4. Cash flow comes after debt service

monthly cash flow = monthly NOI − monthly principal and interest

This estimate is before income tax and does not include capital improvements, unexpected repairs, or a reserve unless the user includes them in an operating-cost field.

5. Compare return metrics with the correct denominator

Gross yield: annual scheduled income ÷ property price.
Net yield: annual NOI ÷ property price.
Cash-on-cash: annual cash flow ÷ initial cash invested.

ToolNest defines initial cash as down payment plus closing costs. If initial cash is zero, cash-on-cash is shown as N/A instead of dividing by zero.

6. Know where the model stops

The MVP does not project appreciation, rent growth, refinancing, sale proceeds, depreciation, tax benefits, mortgage insurance, or changing interest rates. A scenario is a transparent calculation of supplied assumptions—not a forecast or recommendation.

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