Return on investment tells you what a property earns relative to the cash you actually put in — not the purchase price. Because you borrow most of the price, leverage makes property ROI look dramatic. This guide shows how to calculate cash-on-cash and total return, and why leverage cuts both ways.
Return on investment (ROI) measures what you earn relative to what you put in. For property, the money you actually put in is not the purchase price — it is your deposit plus buying costs. That distinction is what makes property ROI so different from rental yield, which is measured against the whole property value.
Because you borrow most of the purchase price, a relatively small cash outlay controls a large asset. This is called leverage, and it is why property ROI figures can look dramatic. Our rental property calculator helps you gather the inputs.
Cash-on-cash return (%) = Annual net cash gain ÷ Total cash invested × 100
Suppose you invested $80,000 all up — deposit plus stamp duty and legal costs — and the property produces a net cash gain of $5,000 in a year after all costs. The cash-on-cash return is $5,000 ÷ $80,000 × 100 = 6.2%. This measures the income the property throws off relative to your actual cash, ignoring any change in the property's value.
Income is only part of a property's return. The bigger driver for most Australian investors is capital growth — the rise in the property's value over time. Because of leverage, growth is measured against your deposit, not the full price.
If that same property rose in value by $40,000 in the year, the total return becomes ($5,000 + $40,000) ÷ $80,000 × 100 = 56.2% for the year. That figure shows leverage at work: a roughly 6% rise in a $650,000 property translates into a far larger percentage on the $80,000 you actually invested.
Over a long hold, capital growth typically dwarfs rental income as the source of return, which is why many investors accept low or negative cash flow in exchange for growth prospects. A property in a strong growth area can more than make up for years of small weekly losses. The catch is that growth is never guaranteed and is impossible to predict precisely — it is the assumption most likely to be wrong in any ROI projection.
Realistic ROI has to account for the costs that quietly reduce it: stamp duty and legal fees upfront, the ongoing holding costs, and eventually capital gains tax when you sell. Selling costs — agent commission and marketing — also take a bite. A projection that ignores these overstates the return, sometimes badly. Estimate the upfront duty with our stamp duty calculator and the exit tax with our capital gains tax calculator.
ROI lets you put property next to shares, a managed fund, or leaving the money in savings. The comparison is not purely about the percentage, though — property is illiquid, concentrated in a single asset, and involves ongoing work, while shares are liquid and easily diversified. A higher projected property ROI should be weighed against those differences, not taken in isolation. Our ROI calculator and compound interest calculator help you model the alternatives.
How do I calculate ROI on an investment property?
Divide your annual net cash gain by the total cash you invested (deposit plus buying costs) and multiply by 100 for cash-on-cash return. Add capital growth to the numerator for total return. Property ROI is measured against your deposit, not the full price, because you borrow the rest.
What is cash-on-cash return?
It is the annual net income a property produces divided by the actual cash you put in. If you invested $80,000 and the property nets $5,000 a year, the cash-on-cash return is 6.2 per cent. It ignores any change in the property's value.
Why does leverage increase property returns?
Because you control a large asset with a small deposit, any growth is measured against your deposit rather than the full price. A 6 per cent rise on a $650,000 property is a much larger percentage on the $80,000 you invested — but leverage magnifies losses the same way.
Does ROI include capital gains tax?
A realistic ROI should account for it. Capital gains tax and selling costs reduce the gain you actually keep, so an ROI figure calculated before tax and selling fees overstates your true return.
Is property a better investment than shares?
It depends on more than ROI. Property offers leverage and forced saving but is illiquid, concentrated and hands-on. Shares are liquid and easily diversified. Compare the projected returns alongside these differences rather than on percentage alone.