How to Calculate Return on Investment for Rental Property
Buying a rental property is one of the biggest financial decisions you can make. With so many options across Metro Detroit, how do you confidently know which one is the right move? You need a reliable guide, a financial compass to point you toward true value. That compass is ROI. Calculating the return on investment for a rental property gives you the clarity to compare a duplex in Ferndale to a single-family home in Troy on an even playing field. It replaces guesswork with certainty, providing the foundation for a smart, successful real estate investment strategy.
Key Takeaways
Look Beyond Rent to Find Your Real Profit: An accurate ROI calculation includes every expense—from closing costs and initial repairs to ongoing maintenance, property taxes, and a buffer for vacancies. Forgetting these details will give you a falsely optimistic number.
Treat ROI as a Dynamic Scorecard, Not a One-Time Grade: Your initial ROI is just a starting point. Plan to recalculate it annually and after major changes like renovations or market shifts to get a true, up-to-date picture of your investment's performance.
A "Good" ROI Is a Local Number: National averages are just a guideline; a strong return in Metro Detroit depends on the specific neighborhood. Factors like local rental demand and appreciation potential in areas from Ferndale to Troy will define a successful investment.
What is Return on Investment for a Rental Property?
When you're thinking about buying a rental property, it’s easy to get caught up in the monthly rent check. But to truly understand if an investment is a winner, you need to look at its Return on Investment, or ROI. Think of ROI as your property's performance report card. It’s a straightforward metric that measures how much profit you make from your investment compared to its total cost.
Calculating your Return on Investment helps you see beyond the surface-level numbers and understand the true profitability of a property. It’s the key to turning a good idea into a great investment and is an essential tool for anyone serious about building wealth through real estate.
Why ROI Is a Must-Know for Investors
Knowing your ROI is like having a financial compass for your real estate journey. It gives you the clarity to make smart, confident decisions instead of just guessing. For anyone looking into real estate investing, this number is non-negotiable. It helps you compare a duplex in Royal Oak to a single-family home in Ferndale on an apples-to-apples basis, seeing which one truly offers a better return.
Beyond just comparing properties, ROI helps you assess risk and plan for the future. It highlights opportunities to lower your costs or increase your rental income, directly impacting your bottom line. Ultimately, this single percentage guides your biggest choices: whether to buy, hold, sell, or even refinance a property. It’s the foundation of a successful investment strategy.
How ROI Compares to Other Key Metrics
While ROI is a powerhouse metric, it doesn’t tell the whole story on its own. Smart investors look at a few key numbers together to get a complete financial picture. Think of it as a dashboard for your property’s health. Besides ROI, you’ll often hear about Net Operating Income (NOI), Capitalization Rate (Cap Rate), and Cash-on-Cash Return.
NOI shows you a property's income after operating expenses but before your mortgage payment, revealing its pure earning power. The Cap Rate gives you a quick way to compare different properties by dividing the NOI by the property's market value. And Cash-on-Cash Return focuses specifically on the return you get on the actual cash you put into the deal. Each metric offers a different perspective, and using them together gives you the most accurate view of your investment.
How to Calculate ROI on Your Rental Property
Ready to talk numbers? Don't worry, the math behind calculating your Return on Investment (ROI) isn't as intimidating as it might seem. Think of ROI as a simple scorecard that tells you how hard your money is working for you. It’s a straightforward way to measure a property's profitability against the amount of cash you put in. Getting comfortable with this calculation is one of the most important steps you can take when you decide to invest in real estate. It helps you compare different properties and make decisions based on solid data, not just a gut feeling. Let’s walk through it step-by-step.
The Essential ROI Formula
At its core, the ROI formula is designed to show you your annual return as a percentage of your initial cash investment. It answers the question: "For every dollar I put in, how many cents am I getting back each year?" The basic formula looks like this:
Annual Net Profit / Total Cash Invested = ROI
Your Annual Net Profit is the money you have left over from rent after paying all your expenses for the year. Your Total Cash Invested is the total amount of money you paid out-of-pocket to acquire the property. By turning this into a percentage, you can easily compare the performance of a rental property to other types of investments, like stocks or bonds.
A Step-by-Step Guide to the Math
Let's use a simple example. Imagine you buy a rental property and your total cash investment (down payment, closing costs, and initial repairs) is $50,000. After collecting rent and paying for the mortgage, insurance, taxes, and other expenses for the year, you have a net profit of $5,000.
Here’s how you’d calculate the ROI:
$5,000 (Annual Net Profit) / $50,000 (Total Cash Invested) = 0.10
To express this as a percentage, just multiply by 100. In this case, your ROI is 10%. This means your investment is generating a 10% return on your cash each year. It’s a powerful metric for evaluating any potential property you're looking to buy in Metro Detroit.
Calculating for Cash vs. Financed Purchases
How you buy the property dramatically changes the ROI calculation. If you pay all cash, your "Total Cash Invested" is the full purchase price plus closing costs and repairs. But most investors use a mortgage, a strategy known as financial leverage.
Using a loan means your initial cash outlay is much smaller—just the down payment and closing costs. This can lead to a much higher ROI. For example, if you bought a $200,000 property with 20% down ($40,000) and had $10,000 in closing costs, your total cash invested is $50,000. Even though your net profit will be lower because of the monthly mortgage payment, you’re earning that profit on a much smaller initial investment, which often results in a better ROI.
How to Figure Out Your Annual Rental Income
Before you can find your profit, you need to know your total income. Your annual rental income is the total amount of money the property generates in a year. The biggest piece of this is, of course, the monthly rent multiplied by 12.
However, don't forget to include any other income streams. Do you charge for parking spots, pets, or on-site laundry? Add all of that to your total. When you're projecting income for a potential investment, it's smart to be conservative. You’ll want to account for potential vacancies, so many investors calculate their gross income based on 11 months of rent instead of 12 to be safe. This gives you your gross potential income for the year.
What Really Goes Into Your ROI Calculation?
Calculating your Return on Investment seems straightforward at first glance, but the real story is in the details. A truly accurate ROI goes far beyond simply subtracting your mortgage payment from your rental income. To make a smart investment decision, you need to account for every single dollar that goes in and out of the property. Think of it as creating a complete financial picture of your investment, not just a quick snapshot.
Getting these numbers right from the start is the key to avoiding surprises and ensuring your rental property performs as expected. It helps you compare different properties on an even playing field and choose the one that best aligns with your financial goals. From the initial cash you put down to the small, recurring costs that add up over time, every expense matters. We’re going to break down all the components you need to consider—the obvious, the easily forgotten, and the completely unexpected—so you can build a calculation that reflects the true potential of your investment. This detailed approach is what separates savvy investors from the rest.
Your Initial Investment and Closing Costs
First things first: let's define your initial investment. This isn't just your down payment. Your total initial investment is the full amount of cash you need to bring to the table to acquire and prepare the property for tenants. This includes your down payment, all closing costs (like appraisal fees, loan origination fees, and title insurance), and any immediate repair or renovation costs. If you need to buy appliances or paint the walls before your first tenant moves in, that’s part of your initial investment, too. Getting a firm handle on this total "buy-in" cost is the first step to an accurate ROI calculation and is essential for anyone looking to invest in Metro Detroit real estate.
Don't Forget These Ongoing Expenses
Once you’ve purchased the property, your expenses don’t stop. To understand your true profit, you have to track all the ongoing costs of ownership. These are the predictable, recurring expenses that will hit your bank account every month or year. Be sure to factor in property taxes, homeowners insurance, and any HOA fees. You should also budget for routine maintenance (like lawn care or snow removal), repairs, and property management fees if you plan to hire someone to handle the day-to-day. If you pay for any utilities, like water or trash, include those as well. Overlooking these costs will give you a falsely optimistic view of your property's performance and can lead to financial strain down the road.
Uncovering the Hidden Costs
Every homeowner knows that unexpected things happen, and rental properties are no exception. A water heater can fail, a roof can spring a leak, or an appliance can break down without warning. These "hidden costs" can quickly eat into your profits if you aren't prepared. That’s why smart investors always build a contingency fund—a cash reserve set aside specifically for these surprises. A good rule of thumb is to budget between 5% and 10% of your annual rental income for unexpected repairs. This isn't about being pessimistic; it's about being a prepared and successful landlord who can handle challenges without derailing your financial goals. Having this buffer provides peace of mind and protects your investment's profitability.
Understanding Tax Rules and Benefits
Now for some good news: owning a rental property comes with significant tax advantages that can positively impact your overall return. The IRS allows you to deduct many of the costs associated with owning and managing your property. These valuable tax deductions can include mortgage interest, property taxes, insurance premiums, repair costs, and even property management fees. You can also deduct depreciation, which is a non-cash expense that accounts for the wear and tear on the property over time. These benefits can reduce your taxable income and improve your net profit, but tax laws are complex. It's always a great idea to consult with a qualified tax professional to make sure you're taking full advantage of every benefit available to you.
What Is a Good ROI for a Rental Property?
Once you know how to calculate your ROI, the next logical question is: what number should you be aiming for? While there’s no single magic number that works for every investor, there are established benchmarks and local factors that can help you set a realistic target for your investment property. Understanding these will help you evaluate potential deals and know when you’ve found a winner.
What's the Industry Standard?
If you ask a group of seasoned investors, you’ll find that a good ROI for a rental property is generally considered to be between 8% and 12%. Think of this range as a solid benchmark. An ROI below 8% might mean the property isn’t generating enough income to be worth the effort and risk, while anything above 12% is typically seen as a fantastic investment. Of course, this is just a guideline. Your personal financial goals and risk tolerance play a huge role in what you might consider a "good" return. For some, a steady 7% in a stable, appreciating neighborhood is perfect, while others might be willing to take on more risk for a shot at 15%.
What to Expect in the Metro Detroit Market
The Metro Detroit real estate market has its own unique rhythm, and what constitutes a strong ROI here can differ from national averages. Your expected return will depend heavily on the specific community you choose to invest in, whether it’s a bustling area in Oakland County or a quieter neighborhood in Macomb or Wayne County. Local factors like property taxes, rental demand, and potential for appreciation all influence your bottom line. That’s why conducting thorough local market research is so critical. A great deal in Ferndale might look very different from a great deal in Troy, so it’s important to ground your expectations in the reality of the specific market you're targeting.
Cash-on-Cash Return vs. Total ROI: What's the Difference?
When you hear investors talk about returns, they might be referring to a couple of different things. It’s helpful to understand the distinction between cash-on-cash return and total ROI. Cash-on-cash return measures the annual cash income you receive against the actual cash you invested (like your down payment and closing costs). It’s a great way to see how hard your out-of-pocket money is working for you. Total ROI, on the other hand, is a more comprehensive view of performance. It includes not just the cash flow but also factors like property appreciation and equity you build by paying down your mortgage. Both metrics are valuable, but they tell you different parts of the story about your investment’s success.
Other Ways to Measure Your Return
While ROI gives you a fantastic snapshot of your investment's performance, it doesn't tell the whole story. To get a truly well-rounded view of your property's financial health, it’s smart to look at a few other key metrics. Think of it like getting a second (and third) opinion—each calculation gives you a different perspective, helping you make more confident decisions. These numbers can help you compare different properties on an apples-to-apples basis and understand exactly how your cash is working for you.
When you're ready to invest in real estate, getting comfortable with these terms will put you miles ahead. They reveal everything from a property's raw profitability to how efficiently your own cash is performing. Let's break down the most important ones you should know.
Understanding Cap Rate
The capitalization rate, or "cap rate," is one of the quickest ways to judge a rental property's profitability. Essentially, it measures the potential return on an investment as if you had bought it with all cash. You find it by dividing the property's net operating income (all rental income minus operating expenses) by its current market value. Because it ignores financing details like your mortgage, the cap rate is a fantastic tool for comparing the raw potential of different properties side-by-side. A higher cap rate generally signals a higher return, but it can also indicate higher risk.
Calculating Cash-on-Cash Return
If you’ve ever asked, "How much money am I actually making on the cash I put down?" then cash-on-cash return is the metric for you. This calculation is especially useful if you financed your property. It measures the annual cash flow you receive against the actual amount of cash you invested out-of-pocket (like your down payment and closing costs). To find it, you simply divide your annual pre-tax cash flow by your total initial cash investment. This gives you a clear, real-world percentage of how hard your money is working for you each year.
Analyzing Your Net Operating Income (NOI)
Net Operating Income (NOI) is a foundational number in real estate investing. It represents your property's total income after you subtract all of your operating expenses—think property taxes, insurance, maintenance, and management fees. What’s important is what NOI doesn't include: your mortgage payments, income taxes, or capital expenditures. This makes it a pure measure of a property's ability to generate profit from its day-to-day operations. You'll use your NOI to calculate other key metrics, like cap rate and cash flow, so getting this number right is absolutely essential.
A Look at Internal Rate of Return (IRR)
While it sounds complex, the Internal Rate of Return (IRR) is a powerful metric that estimates the total long-term profitability of your investment. Unlike other calculations that look at a single year, IRR considers your initial investment and all future cash flows over the entire time you plan to own the property, including the final profit from its sale. It essentially tells you the annualized rate of return you can expect. A higher IRR is always better, and it’s an excellent way to compare a real estate investment against other opportunities, like stocks or bonds, to see where your money can grow most effectively.
How Does Location Affect Your Rental Returns?
You’ve heard it a million times: "location, location, location." In real estate investing, this isn't just a catchy phrase—it's the foundation of a successful strategy. The specific spot you choose for your rental property has a massive impact on everything from your initial purchase price to your long-term appreciation and the quality of tenants you attract. But "location" means more than just the city. It’s about the county, the neighborhood, and even the specific block.
Different areas within Metro Detroit offer unique advantages. An investment property in a bustling, growing urban center will have a completely different financial profile than one in a quiet, established suburb. Understanding these nuances is key to aligning a property with your financial goals. Whether you're aiming for steady monthly cash flow or long-term value growth, the right location is your starting point for a smart real estate investment. It dictates your potential income, your ongoing expenses, and ultimately, your ROI. A great property in a declining area can be a financial drain, while a modest property in a thriving neighborhood can become a cornerstone of your portfolio. That's why a deep dive into the local market is non-negotiable before you ever make an offer.
Rental Market Trends in Oakland County
Oakland County is known for its dynamic and growing urban areas, which presents a specific type of opportunity for investors. Properties here might show a lower initial cash-on-cash return, but they often come with much higher potential for long-term appreciation. Think of it as a trade-off: you might not see as much cash in your pocket month-to-month, but the property's value could grow significantly over time. When evaluating properties in cities like Royal Oak, Ferndale, or Troy, you have to decide what matters more to you right now—immediate cash flow or building wealth through equity.
Finding Opportunities in Macomb and Wayne Counties
In Macomb and Wayne Counties, the definition of a "good" ROI can be more varied. A 5% return might be an excellent, stable investment in one neighborhood, while in a rapidly developing area, you might hold out for something higher. This is where deep knowledge of local market conditions becomes so important. The key is to analyze the balance between risk and reward. A stable, established area may offer more predictable returns, while an up-and-coming neighborhood could provide higher growth potential if you're willing to take on a bit more uncertainty.
Neighborhood Details That Drive Higher Returns
Once you’ve zeroed in on a county, it’s time to look at the micro-level details that drive rental demand. Factors like proximity to parks, restaurants, and public transit can make a property far more attractive to potential tenants. The quality of local school districts is another huge driver, as it directly influences the pool of long-term, family-oriented renters. Low crime rates and a strong sense of community also play a vital role in ensuring you can charge competitive rent and maintain consistent occupancy, which are both essential for a healthy ROI.
Common ROI Calculation Mistakes to Avoid
Calculating your ROI can feel like a simple math problem, but it's easy to get the numbers wrong if you miss a few key details. Think of it like baking a cake—if you forget an ingredient or mismeasure the flour, the result won't be what you hoped for. The same goes for your investment calculations. A small oversight can lead to a big gap between your expected and actual returns, which is a surprise no one wants.
Making a smart real estate investment starts with an honest look at the numbers. Getting your projections right from the beginning sets you up for success and helps you choose a property that truly aligns with your financial goals. It’s not about being pessimistic; it’s about being realistic. By steering clear of a few common missteps, you can build a financial forecast that you can actually count on. Let’s walk through some of the most frequent mistakes investors make so you can avoid them entirely.
Underestimating Repair and Maintenance Costs
It’s a fact of homeownership: things break. From a leaky pipe under the sink to a furnace that gives out in the middle of a Michigan winter, repairs are inevitable. Many new investors create a budget for the big, obvious renovations but forget to account for the small, ongoing maintenance that keeps a property in great shape. A good rule of thumb is to add an extra 10% to 20% to your estimated repair budget as a buffer. This contingency fund ensures that an unexpected expense doesn’t completely throw off your annual return. Planning for these costs from day one will help you protect your investment and your peace of mind.
Overestimating Your Potential Rental Income
When you’re excited about a potential property, it’s tempting to imagine charging top-dollar for rent. But optimism can quickly cloud your judgment. The most accurate way to project your income is to look at what similar properties in the same neighborhood are actually renting for right now. Don't base your numbers on what you hope to get in a year or what an online estimate suggests. Market rates can fluctuate, so you need to ground your calculations in current, real-world data. We can help you find accurate rental comps in Metro Detroit to ensure your income projections are solid from the start.
Forgetting to Factor in Vacancy Periods
Even in a hot rental market, it’s unrealistic to assume your property will be occupied 365 days a year. There will always be gaps between tenants, whether it’s for a few weeks of cleaning and repairs or a month or two of marketing to find the right person. This downtime is called the vacancy period, and it means zero rental income for that time. A conservative and safe approach is to plan for at least a 5% vacancy rate, which is about 18 days a year. By building this buffer into your ROI calculation, you ensure that a month without a tenant doesn't turn into a financial emergency.
Ignoring Property Management Fees
Being a landlord is a hands-on job that involves marketing, screening tenants, collecting rent, and handling late-night repair calls. Many investors choose to hire a property management company to handle these tasks, which typically costs about 8% to 12% of the monthly rental income. If you plan to use a manager, this fee is a non-negotiable expense that must be included in your ROI calculation. Even if you intend to manage the property yourself, it’s wise to factor in this potential cost. Your time has value, and you may decide to hire help down the road. Including this fee ensures your investment makes sense financially, with or without a manager.
How Your ROI Can Change Over Time
Your initial ROI calculation is a snapshot in time—a crucial starting point, but not the final word. As an investor, it’s important to understand that your return on investment is a dynamic figure that will shift over the years. Market conditions, property performance, and your own financial strategies all play a role in how your investment matures. Think of your ROI not as a fixed grade, but as a living metric that reflects the health and potential of your property.
Keeping an eye on these changes helps you make smarter decisions, whether that means refinancing, adjusting rent, or knowing the perfect time to sell. Staying proactive allows you to adapt and continue getting the most out of your real estate investment portfolio. Regularly revisiting your ROI isn't just about checking a box; it's about actively managing your asset to ensure it's working as hard for you as possible.
Market Shifts and Property Appreciation
The real estate market is always moving, and local trends in Metro Detroit can have a huge impact on your property's value and rental income. A neighborhood that’s rapidly developing might offer lower initial cash flow but promises significant long-term appreciation, which will change your total ROI over time. On the other hand, a stable, established suburb could provide consistent rental income from day one but with slower appreciation. Understanding the nuances between different areas in Oakland, Macomb, and Wayne Counties is key to seeing the full picture of your investment’s performance.
The Impact of Tenant Quality and Vacancy
Few things affect your ROI more directly than tenant turnover and vacancy periods. When a rental unit is between tenants, you’re not just losing out on rent—you’re still paying the mortgage, taxes, and insurance. High turnover also brings on extra costs for marketing the property, screening new applicants, and handling repairs or fresh paint between tenants. Securing reliable, long-term tenants is one of the best ways to protect your cash flow and keep your ROI predictable. A smooth rental experience means fewer surprise expenses and more consistent income month after month.
How Interest Rates Affect Your Bottom Line
If you financed your property, your mortgage is one of your biggest ongoing expenses. The interest rate you secured at closing plays a massive role in your monthly costs and, therefore, your ROI. Over time, interest payments add up, becoming a significant part of your total investment cost. However, this also presents an opportunity. If interest rates drop, you may be able to refinance your loan to a lower rate. This can reduce your monthly mortgage payment, instantly improving your cash flow and changing your ROI for the better without you having to do anything to the property itself.
When to Invest in Property Improvements
Making strategic updates to your property can directly influence your ROI. While renovations require an upfront investment, they can lead to higher rental income and increase the overall value of your asset. The key is to choose improvements that tenants in your area value, like a modernized kitchen or updated bathrooms. It’s wise to plan for these expenses from the start. A good rule of thumb is to set aside 1% to 2% of the property’s purchase price each year for major repairs and capital expenditures, like a new roof or HVAC system. This ensures you have the funds to maintain and improve your property, protecting its value and enhancing its return.
When Should You Recalculate Your Property's ROI?
Your property’s ROI isn’t a number you calculate once and then file away. Think of it as a living metric that reflects the real-time health of your investment. Just as you’d go for an annual check-up, your property needs a regular financial review to ensure it’s performing as expected. Market conditions shift, expenses change, and your property’s value fluctuates. Sticking with an outdated ROI calculation can give you a false sense of security or, worse, hide underlying issues that need your attention.
Staying on top of your numbers allows you to make smart, proactive decisions. Whether you're considering a rent increase, planning a renovation, or thinking about your next investment property, an up-to-date ROI is your most reliable guide. It helps you see where your investment stands today and what you can do to improve its performance tomorrow.
Why an Annual Review Is Non-Negotiable
Setting aside time for an annual ROI review is one of the smartest habits you can build as a property investor. This yearly check-in is your opportunity to take a clear-eyed look at your property's performance over the last 12 months. You can compare your actual income and expenses against your initial projections and see how things are really stacking up. Did your maintenance costs come in higher than expected? Was your rental income consistent?
An annual review helps you spot trends, adjust your budget for the coming year, and set realistic financial goals. It’s also the perfect time to compare your property’s performance against other potential investments. This simple practice keeps you in control and ensures your investment strategy remains aligned with your long-term objectives.
Market Signs It's Time to Rerun the Numbers
Sometimes, you don’t need to wait for your annual review to rerun the numbers. The market itself will give you clear signals that it’s time for a check-in. A significant shift in local rent prices is a major trigger. If comparable properties in your neighborhood are suddenly renting for more—or less—you need to know how that impacts your potential income and overall return. The same goes for property values. A dip in the market could affect your equity and long-term appreciation.
Keeping an eye on local economic indicators, like job growth or new developments in areas like Royal Oak or Troy, is also key. These factors can influence demand and property values across Metro Detroit. When you notice these kinds of changes, recalculating your ROI helps you understand the immediate impact on your investment.
After Renovations or Major Property Changes
Did you just put on a new roof or complete a full kitchen remodel? Any time you make a significant capital improvement, it’s essential to recalculate your ROI. These upgrades add to your total investment cost, which directly affects the calculation. At the same time, renovations can increase your property’s value and allow you to charge higher rent, which changes the income side of the equation. Rerunning the numbers shows you the direct return on that specific improvement.
This also applies to unexpected major expenses, like replacing a furnace or dealing with a serious plumbing issue. While these aren’t glamorous upgrades, they are significant costs that reduce your profits. Factoring them into your ROI calculation gives you a more accurate picture of your property’s true performance.
Related Articles
Frequently Asked Questions
What's the biggest mistake new investors make when calculating ROI? Hands down, the most common mistake is underestimating expenses. It’s easy to focus on the big numbers like the mortgage payment and property taxes, but the smaller, recurring costs and the big, unexpected ones are what really impact your return. Forgetting to budget for things like vacancies, routine maintenance, and a fund for major repairs (like a new water heater) will give you an overly optimistic ROI that doesn't reflect reality.
Is a higher ROI always the better choice? Not necessarily. While a high ROI looks great on paper, it can sometimes signal a riskier investment. A property in a less stable neighborhood might offer a 15% return, but it could also come with higher tenant turnover and more maintenance issues. On the other hand, a property in a prime, stable area might offer a steady 8% return with less risk and a greater chance of long-term appreciation. The "best" ROI is the one that aligns with your personal financial goals and your tolerance for risk.
How is ROI different from the cash-on-cash return I hear about? Think of them as two different lenses for looking at your investment. Cash-on-cash return is very specific: it tells you the return you're getting only on the actual cash you pulled out of your pocket for the down payment and closing costs. ROI can be a broader term that often includes your total return, factoring in things like the equity you build as you pay down your mortgage and the property's appreciation over time. Cash-on-cash is great for seeing how hard your initial investment is working right now.
How much should I realistically set aside for repairs and vacancies? A smart and safe approach is to follow a couple of industry rules of thumb. For vacancies, budget for at least 5% of your annual rent, which is roughly one month of missed rent every two years. For maintenance and repairs, plan to set aside about 1% of the property's purchase price annually. So, for a $200,000 property, you'd want to save around $2,000 a year for those inevitable repairs. This creates a buffer that protects your profits from unexpected hits.
Does my ROI improve as I pay down my mortgage? Yes, your total return on investment definitely improves over time. As you pay down your mortgage, you are building equity, which is a form of return. While your monthly cash flow might stay the same, your net worth is growing. When you eventually sell the property, the profit you make from appreciation and the principal you've paid down are all part of your total ROI, which is often much higher than the simple annual cash flow calculation you started with.
