How to Use the Leveraged Real Estate ROE Calculator
Buying the same rental property with cash versus with a mortgage produces very different returns on your own money. Enter the purchase price, equity invested, mortgage rate, and annual net operating income (NOI), and this calculator shows both the unleveraged cap rate (as if you paid all cash) and the leveraged return on equity (ROE) after subtracting mortgage interest.
When the cap rate is higher than your mortgage rate, borrowing more pushes ROE above the cap rate — that's positive leverage. When the mortgage rate is higher than the cap rate, adding debt instead pulls ROE below the cap rate — that's negative leverage. Check this relationship before deciding how much leverage to take on.
The NOI you enter should already net out vacancy, property taxes, insurance, and other operating costs. This calculator doesn't factor in loan principal paydown, depreciation, or price appreciation at sale — those add to your total return separately, so weigh them alongside the ROE figure here rather than relying on it alone.
Frequently Asked Questions
When the cap rate (NOI divided by purchase price) is higher than your mortgage rate, the return earned on borrowed money adds to your equity return — this is called positive leverage.
That's negative leverage: borrowing more actually pulls your equity ROE below the unleveraged cap rate instead of boosting it.
This calculator uses the annual NOI you enter, which should already reflect vacancy and operating expenses. Enter NOI net of those costs for an accurate result.