Rental Full ROI Calculator

The math behind this calculator

Every number in the tool above comes from these formulas — nothing hidden.

The four return engines

Rental returns arrive through four separate channels, and cash-on-cash return only counts one of them. Cash flow is what hits your bank account monthly. Equity paydown is the tenant’s rent slowly retiring your mortgage — invisible monthly, enormous over a decade. Appreciation lifts the asset itself. And the tax code hands residential landlords depreciation: a paper loss that often shelters most of your positive cash flow from current income tax.

Add all four over a year, divide by the cash you have invested, and you get total ROI — the honest number for comparing a rental against stocks, syndications, or simply paying down your own house. The surprise for most first-time investors is which engines do the most work: on a 20-year hold, equity paydown plus appreciation usually outgrows the cash flow.

Depreciation, the quiet engine — in detail

Residential rental buildings are depreciated straight-line over 27.5 years, on the building value only (land doesn’t depreciate). On a $200,000 Indianapolis property with roughly $160,000 of building value, that’s about $5,800 a year of paper loss deducted against your rental income — often enough to shelter most or all of your positive cash flow, and sometimes other income too, subject to the passive-activity rules.

This is the closest thing to a free lunch in real estate — with two catches. First, the benefit is capped by your building basis and your own tax situation, so a CPA should bless your number. Second, it’s a timing benefit, not a gift: at sale, the IRS takes it back.

Cost segregation — supercharging depreciation

A cost segregation study reclassifies 25–50% of a building from 27.5-year real property into 5-, 7-, and 15-year personal property and land improvements — carpet, cabinetry, landscaping, site utilities — unlocking accelerated deductions. The difference is dramatic: $500,000 of depreciable value produces about $12,300 a year on a 39-year commercial schedule, but as reclassified personal property can produce $70,000–$100,000 of first-year deductions.

The trade-off: accelerated items (Section 1245 property) are recaptured as ordinary income at sale, and a cost-segregated property needs careful handling in a future 1031 exchange. Done deliberately with a CPA, it’s a powerful cash-flow tool on larger acquisitions; done casually, it’s a tax headache you paid to create.

Recapture, 1031 exchanges, and the long game

When you sell, capital gains are taxed — and accumulated depreciation is taxed again at a 25% federal recapture rate, on top of state tax. A 1031 exchange defers both: sell, identify replacement property within 45 days, close within 180 days, and the entire tax bill rolls forward into the next property. Chained together, 1031s let investors grow a portfolio without paying tax on the gains along the way.

The final chapter is the step-up in basis: under current law, heirs receive property at its market value at the owner’s death — the deferred taxes, including recapture, evaporate. This is why buy-and-hold investors speak of "never selling" so reverently. Austin works with investors and their CPAs on 1031 timelines — the identification window is unforgiving.

Reading total ROI

• A total levered return of 10–15% a year is a strong, achievable outcome on a well-bought Indianapolis rental — usually built from modest cash flow, steady paydown, and conservative appreciation.
• If your ROI only works with 5%+ appreciation, you aren’t underwriting an investment — you’re hoping for one. Indianapolis has historically appreciated 2–4%; the appreciation input deserves your most conservative guess.
• Notice which engine carries the number. An ROI built mostly from appreciation is a market bet; one built from cash flow plus paydown is a business. Both can work — but you should know which one you own.

A worked Indianapolis example

Buy a $200,000 single-family rental with 20% down ($40,000 plus $5,000 closing costs, about $45,000 invested). It rents for $1,500 a month, cash flows about $150 a month after honest reserves — $1,800 a year, or 4% cash-on-cash. Modest, on purpose.

Now add the other engines. Principal paydown in the early years runs roughly $3,600 a year. At 3% appreciation the property gains $6,000 a year. Depreciation on $160,000 of building value shelters roughly $5,800 of income — worth about $1,600 a year in avoided tax at a 28% bracket. Total: roughly $13,000 of annual benefit on $45,000 invested — about a 29% total return, of which only 4 points ever touched a bank account. That’s the entire case for total ROI analysis.

Where total ROI lies to you

• Double-counting equity: the principal paydown comes from rent that could have been invested elsewhere — a real return, but not free money stacked on top of cash flow.
• Ignoring exit costs: selling costs (6–8%) and depreciation recapture eat the final year’s paper gains; a long hold amortizes them, a quick flip doesn’t.
• Assuming tax benefits forever: depreciation is capped by basis, and your income-tax situation can change. Model it as an estimate, not an entitlement.
• Forgetting rate resets: this calculator uses a fixed-rate loan; if your plan involves a refinance, rerun it at the higher rate.
• Assuming the market stays flat in your favor: appreciation works in reverse too. The 2–4% historical band has down years inside it.