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How to Calculate Rhode Island Rental Property ROI

Understanding how to calculate ROI on a Rhode Island rental property is essential for making smart investment decisions. From one unit to a growing portfolio, knowing your return helps you evaluate performance, compare opportunities, and plan for long-term growth. We break down the basics and explain how working with a property management company in Rhode Island can impact your numbers.


What Is ROI in Rental Property Investing?

ROI (Return on Investment) measures how much profit your rental property generates compared to how much money you’ve invested.


Basic ROI Formula:

ROI = (Annual Net Profit ÷ Total Investment) × 100

While the formula is simple, the accuracy depends on how well you track income and expenses, something many owners underestimate.


Step 1: Calculate Your Annual Rental Income

Start with your gross rental income, including:

  • Monthly rent

  • Parking or storage fees

  • Laundry or other ancillary income


Example:

  • Monthly rent: $2,000

  • Annual rent: $24,000

Be realistic. Factor in vacancy and Rhode Island late rent, especially if you self manage. A local property manager in Rhode Island can help stabilize income through better screening and rent collection systems.


Step 2: Subtract Operating Expenses

This is where ROI calculations often go wrong. Common expenses in property management in RI include:


Example Annual Expenses:

  • Property management: $2,160

  • Maintenance & repairs: $2,500

  • Taxes & insurance: $4,200

  • Miscellaneous & reserves: $1,200

  • Total expenses: $10,060


Step 3: Determine Net Operating Income (NOI)

NOI = Annual Rental Income – Operating Expenses

Using the example above:

  • $24,000 – $10,060 = $13,940 NOI

This number is key when comparing properties or evaluating performance year over year.


Step 4: Calculate Your Total Investment

Your total investment may include:


Example:

  • Down payment & closing costs: $65,000

  • Initial repairs: $10,000

  • Total investment: $75,000


Step 5: Calculate ROI

ROI = ($13,940 ÷ $75,000) × 100 = 18.6%

This is a strong ROI for a Rhode Island rental property, especially when professionally managed.


Where the Mortgage Fits Into Your ROI Calculation

One of the most common questions rental property owners ask is: “Where does the mortgage factor into ROI?”


The answer depends on which type of ROI you are calculating. In practice, there are two different ROI metrics, and each serves a different purpose.



View of a kitchen in an apartment in Woonsocket, RI managed by The Hennessy Group

ROI Without a Mortgage: Measuring Property Performance

When calculating ROI at the property level, the mortgage is intentionally excluded. This is because financing varies from owner to owner, but the property’s performance does not.


This metric is based on Net Operating Income (NOI).

NOI Formula:

  • Annual rental income

  • Minus operating expenses (management, maintenance, taxes, insurance, reserves)

  • Mortgage payments are not included


Example:

  • Annual rental income: $24,000

  • Operating expenses: $10,060

  • NOI: $13,940


Total cash invested (down payment, closing costs, repairs):

  • $75,000


NOI-Based ROI:

$13,940 ÷ $75,000 = 18.6%

This version of ROI helps you:

  • Compare properties objectively

  • Evaluate pricing and long-term value

  • Understand whether the asset itself is strong

This is the number lenders, appraisers, and experienced investors use to assess property fundamentals.


ROI With a Mortgage: Cash-on-Cash Return

If you want to know how the property affects your personal finances, the mortgage matters. This is called cash-on-cash ROI, and it measures how much cash you actually earn (or lose) after debt service.


Adding a Mortgage to the Same Example

Assume:

  • Loan amount: $225,000

  • Interest rate: 6.75%

  • Monthly mortgage payment (principal & interest): $1,460

  • Annual mortgage payments: $17,520


Annual Cash Flow Calculation:

  • NOI: $13,940

  • Minus mortgage payments: $17,520

  • Annual cash flow: –$3,580


Cash-on-Cash ROI:

–$3,580 ÷ $75,000 = –4.8%


In this scenario, the property:

  • Performs well as an asset

  • Builds equity

  • May appreciate over time

  • Does not generate positive cash flow under this loan structure

This is common in Rhode Island, where taxes, insurance, and interest rates can significantly impact short term returns.


Why Both ROI Metrics Matter in Rhode Island

Many owners focus only on rent and mortgage payments and miss the bigger picture.


Accurate ROI requires accounting for:

  • Property management cost in Rhode Island

  • Tenant maintenance requests

  • Rhode Island late rent

  • Budgeting for property maintenance

  • Leasing and turnover costs

  • Compliance with Rhode Island’s security deposit laws


A professional property management company in Rhode Island helps owners model both NOI and cash-on-cash ROI accurately and identify opportunities to improve performance.


How Property Management Can Improve ROI Even With a Mortgage

Even when mortgage payments pressure cash flow, experienced property management in RI can improve results by:

  • Reducing vacancy time

  • Enforcing rent collection consistently

  • Pricing units to market

  • Preventing costly deferred maintenance

  • Helping owners track rental income and expenses accurately

In many cases, small operational improvements are enough to move a property closer to break-even or positive cash flow.


Bottom Line

  • NOI-Based ROI tells you whether the property is a good investment

  • Cash-on-Cash ROI tells you whether the deal works for your finances today

Understanding both gives Rhode Island rental property owners a clearer, more realistic view of performance and helps avoid surprises down the road.


Why Expenses Matter More Than You Think

Many owners focus on rent but overlook:


A professional property management company in Rhode Island helps control these costs while protecting your investment and time.


ROI With vs. Without Property Management

Some owners hesitate due to property management cost in Rhode Island, but management often:

  • Reduces vacancy and late rent

  • Improves tenant retention

  • Prevents costly legal mistakes

  • Streamlines how to track rental income and expenses


In many cases, professionally managed properties outperform self-managed ones in net ROI, even after management fees.


Final Thoughts on Rhode Island Rental Property ROI

Calculating ROI on a Rhode Island rental property is about accuracy, consistency, and planning. When income and expenses are properly tracked and managed, ROI becomes a powerful decision making tool.

If you want help maximizing ROI, improving cash flow, or understanding whether your property is truly performing, working with a trusted local property manager in Rhode Island can make all the difference.


The Hennessy Group helps property owners across Rhode Island protect their investments, optimize returns, and simplify ownership through strategic, hands-on management. Contact us today for a management proposal for your investment property.

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