1. What is Real Estate ROI Coverage?

The coverage ratio measures how well a property's rental income covers its expenses relative to the investment. It provides insight into the profitability and risk of a real estate investment.

2. How Does the Calculator Work?

The calculator uses the coverage formula:

Where:

• \( Rental\ Income \) — Annual rental income in dollars
• \( Expenses \) — Annual property expenses in dollars
• \( Investment \) — Total investment amount in dollars

Explanation: The formula calculates what percentage of your investment is covered by net rental income each year.

3. Importance of Coverage Calculation

Details: A higher coverage percentage indicates better investment performance. Coverage ratios help investors compare different properties and assess risk.

4. Using the Calculator

Tips: Enter annual rental income, annual expenses, and total investment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good coverage ratio?
A: Generally, a ratio above 10% is considered good, but this varies by market and property type.

Q2: Should I include mortgage payments in expenses?
A: Yes, include all operating expenses including mortgage, taxes, insurance, maintenance, and vacancies.

Q3: How does this differ from cap rate?
A: Coverage ratio considers financing costs while cap rate typically looks at property value rather than investment amount.

Q4: What if my expenses exceed rental income?
A: A negative coverage indicates the property is losing money and may not be a good investment.

Q5: Should I use gross or net rental income?
A: Use net rental income after accounting for vacancies and concessions.