Return on Equity (ROE) Calculator for Real Estate Investing

“Should I keep this rental, pull out cash or sell it?” is a question that investors ask me on a regular basis. Savvy investors don’t live by the simple mantras of “never sell a property” or “never sell if the cash flow is greater than $500/mo.” Simple mantras make great blog headlines, but poor investing advice.

The two best rules of thumb that I’ve developed and learn from other investors are:

  1. Is the current property less than a 4% cap rate? Use current numbers as if you are repurchasing it.
  2. What is the current return on equity and your equity opportunity costs? If ROE is less than 15%, it starts to look more attractive to sell it or pull out cash.

Even those two items are only rules of thumb and take skill to calculate and evaluate! To help take the guesswork out of evaluating properties, I created the Return on Equity (ROE) Calculator to show options and likely returns. Details and numbers matter when you’re evaluating your portfolio! I used the ROE calculator myself to determine if I should sell, refinance or keep my first rental property.

It has 12 tabs, but there are 5 that we’ll focus on. The other 7 are running calculations in the background.

Latest Version: Version 1.1
Schedule an investment consultation to get access and to discuss your situation.

Option #1: Analyzing ROE and Cap Rate of the Current Rental

The very first thing is to analyze your current rental. What’s the cap rate? What’s the return on equity? What’s the cash flow? What’s the total return being generated?

The return on equity calculator displays the current cap rate and return on equity.

Keep It

Option #2A: Pulling The Max Money Out

One the options is to pull out cash either through a cash-out refinance or a HELOC (Home Equity Line of Credit). The ROE calculator has you plug in a few variables (such as LTV and interest rate) so it can calculate two main items:

  1. How much cash can you take out to reinvest?
  2. How does the newer and higher mortgage payment impact the investment performance of rental #1. What’s the cash flow? What’s the new ROE?

The calculator utilizes the Debt Service Coverage Ratio (DSCR), which is a commercial lending metric to check to see if it’s still a safe investment. Many times it’s not! In the Denver market, it’s not uncommon to see a negative cash flow from doing a maximum cash-out refinance.

Option #2B: Pulling the “Safe” Amount of Cash Out

Utilizing the DSCR calculation, the ROE Calculator will determine a “safe” amount of cash to pull out. It’ll then show the returns on the current rental and the future rentals.

Option #3: Sell And Buy Better Performing Rentals

Another option is to sell the property and then use the proceeds to buy better performing rentals. I know, it goes against the “never sell a property” mantra. But often times this the best wealth building option, even after accounting for all the real estate transactions costs.

Return on Equity Summary Performance

My favorite tab on the ROE calculator is the summary tab that puts the four options side by side so you can compare the returns of each. Believe it or not, selling and utilizing a 1031 exchange is often the best option.


What’s the Best Option For You?

The ROE Calculator is an important tool help with the decision, but there’s still more items to consider:

  • What’s the performance of your entire rental portfolio?
  • What are your goals?
  • How far are you from retirement?
  • What’s your risk profile?
  • What’s liquidity for buying and operating more rentals?
  • Your property preference type?

As you can see, this can become a complicated and detailed discussion – as it should! You’re probably talking hundreds of thousands of dollars… figure out all the details.

Since this is such a complicated topic and calculator, this is one of the few resources that are not free on our website. To get a copy and be coached through the options, there are two options:

  1. Become an investor-client to get access to this and all of our investor client services.
  2. Become a coaching client


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