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How To Easily Calculate The Return-On-Investment (ROI) For Rental Properties


As promised, I shall be sharing in this post how I calculate the Return-On-Investment or ROI that I could get for a property. To better illustrate the computation, we will use an actual example which I earlier introduced in Pre-auction bids – Another lesson learned.

For this example, I shall be using the buy-and-hold strategy as the property shall only be rented out. I personally favor properties that are profitable as rental properties because this strategy is actually the last resort in case a property takes too long to sell.


Here are the assumptions we shall be using: A small condo unit with an area of 22sqm is being sold for only Php14,000/sqm or about Php308,000. According to the bank agent, rentals of studio units in this area of Makati are between P8,000 to P10,000 per month. For this example let’s use the more conservative estimate of P8,000 per month or P96,000 per year.

If I decide to hire a property manager, property management costs would be around P1,000 per month or P12,000 a year.

Let’s also build a maintenance reserve fund at P1,000 a month or P12,000 a year.

For rental properties, never assume that a property will always be tenanted 100% of the time so for this example, I shall be using a conservative assumption of 1 month of vacancy per year.

Real Property Taxes are estimated to be around P9,000 per year.

Lastly, property insurance would be around P1,000 per year.

As I have mentioned in Five Things to Consider when Buying Foreclosures, Capital Gains Tax and Documentary Stamps Tax (DST) should also be considered as these are very significant just in case these are for the account of the buyer. For this example, CGT and DST are for the account of the seller so there is no need to include them.

Scenario 1: I shall pay in  cash

The Annual Net Income would be as follows:

Annual Rental Income——-P 96,000.00
1 Month vacancy—————–(8000.00)
Property management——-(12,000.00)
Maintenance reserve———(12,000.00)
Real Property Tax—————(9,000.00)
Annual Net Income————P54,000.00

This Annual Net Income is also equal to the annual passive income.

As mentioned in the book “Think Rich Pinoy!” by Larry Gamboa, you calculate the cash-on-cash ROI by dividing the annual passive income by the money you have out at the end of the first year or the Total Cash Invested which is equal to the selling price of P308,000 as I decided to pay in cash for this example.

ROI = Net Income / Total Cash Invested x 100%
= 54,000/308,000 x 100%
= 17.53%

With a projected ROI of around 17.53% per year, this sounds good! But what if I decided to use leverage and pay in installments?

Scenario 2: Use leverage and pay through bank financing

If I paid through bank financing, my 10% down payment would only be P30,800 which results in a balance of P277,200 . With a bank loan at 11% interest per annum and a loan term of 10 years, the monthly amortizations would be Php3,318.43 or Php39,821.16 per year. You can use a mortgage calculator which can be found here to get the monthly amortizations.

The Annual Net Income would then be as follows:

Annual Rental Income——P96,000.00
Annual Amortizations——–(39,821.16)
1 Month vacancy—————(8,000.00)
Property management——(12,000.00)
Maintenance reserve——–(12,000.00)
Real Property Tax————-(9,000.00)
Annual Net Income———-P14,179.00

For this case, the Total Cash invested is only the 10% Down payment which is P30,800

ROI = Annual Net Income/Total Cash Invested x 100%
= 14,179/30,800 x 100%
= 46.04%

While the Annual Net Income amount when using leverage maybe small compared to the Annual Net Income amount when paying in cash, in terms of ROI, it looks a lot better at 46.04%. This means for each peso invested when using leverage, earnings are higher as compared to paying in cash.

I would like to emphasize that the initial investment was a mere P30,800 only, which is the 10% down payment! This illustrates the power of leverage. For this particular example, the property appears to be a good investment as a rental property.

If you find the computations to be intimidating, don’t be! You can always use an excel sheet and this can be done in a few minutes. In fact, you can download a sample excel file here. Just plug in your own numbers and feel free to play around with it.

As you can see, the numbers really show if a property is a good buy or not and is a much more objective means of comparing it with other investment alternatives like stocks, bonds, mutual funds, certificate of deposits, etc.

You can also use this to validate claims of some sellers/developers that their properties are good investments because of a high ROI. Take a look at their computations and make sure that factors like taxes, property management costs, and other expenses are considered.

In my next series of posts, I’ll show you how the numbers would look like using the other common investment strategies like rent-to-own, rehabbing, and wholesaling. I’m quite sure many of you will be surprised. So don’t forget to subscribe to my mailing list so you won’t miss them.

P.S. I’ll also be discussing CWT in the next posts with the help of my wife. This was requested by Betty. Sorry I wasn’t able to include it here as my wife wants to review BIR’s revenue regulations first just to be sure we’ll have an accurate example.

*Update – Some of you might be asking how about repairs and marketing costs? For this example, I did not include these as the unit was in pretty good shape and marketing can be done using the free services of and

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About Jay Castillo
People encounter problems and make mistakes when buying foreclosed properties, and Jay wants to help people avoid those problems/ mistakes. Jay encountered a lot of those, which is why he started this blog in 2008 to serve as a guide where he shares lessons learned, and how to overcome challenges you may encounter when investing foreclosed properties in the Philippines … [Read more]
Avoid losing money, wasted time and effort caused by buying foreclosed properties that have too many problems, with our free 60-item Property Due Diligence Checklist. Grab your free copy now.

72 thoughts on “How To Easily Calculate The Return-On-Investment (ROI) For Rental Properties”

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  4. I hope you can also come out with a blog that will mention the following:
    – if i invest in real estate(condo) RFO, and i pay 20%, and balance of 80 % is done through bank financing 5.5 percent per anum, 15 years) ,Meaning, i am still earning a good deposit rate on the 80 percent,therefore this will further increase the potential of the property bought through bank financing a better investment decision as compared to paying in cash

    Example: i bought an RFO 3.0m Php condo 33 sqm in Makati. I paid 20% (600,000 Php) the balance of 80 percent will be bank finance. Therefore, my 2.4m Php is earning interest of 3% in a time deposit in a bank, i get to rent out the property for a year and it gives me a gross rate of 25,000 php a month and i am paying the bank a monthly amort of around 22,000 Php

    So at the end of the day, my condo comes out to be self liquidating (for a year), and at the same time, i still get to earn a good deposit interest. Even if i have a little negative cash flow on the condo due to other expenses such as taxes, and furnishings, assoc dues, at the end of the day i have an asset in makati city’s cbd

    Anyway, your blog is very good. I just hope you can write or come up with an article about investing in a property thru bank financing and its advantage because a percentage of the payment would still be earning a good deposit rate in a bank.

  5. Hi, Good Day to you, I’m searching every where kung paano magkaroon ng financial freedom. Seaman po ako at 12 years napong pabalik balik sa barko pero ganon pa rin walang nagbabago kundi ang edad lang. Marami napo akong negosyong napasukan pero walang nagtatagal. Sayang lang po yung puhunan ko po. I’m reading your illustration and Im interested in doing this. Thank you and I’m reading more so that next time I will invest my hard earned money  in the right track….

  6. Hi Jay, thanks sa example mo paano pag-compute ng ROI. I’m looking for one para sa Condo and this post is excellent. Maraming salamat at nakakatulong talaga ito.

  7. mr.jay
    can you send me a list of houses that are already foreclosed at kapayapaan ville laguna? can you help me?Im too tired of renting a house.

  8. hello po.. What particular bank po ba ang nasa example po ninyo sa:

    Scenario 2: Use leverage and pay through bank financing
    (bank loan)

    • Hi Kathlyn, this was based on my loan application with GE Money Bank that got approved back then (for another bank foreclosed property). Please take note that this was more than 2 years ago, so expect interest rates to have changed already. There are still banks that offer a minimum of only 10% downpayment when buying foreclosed properties. For example: UnionBank, although their current interest rates are fixed at 13% for the first 3 years and 15% for the next 12 years.

  9. Good Job Sir Jay! Ang galing naman po. Sir may i have a question. Yung bahay po namin which is 300 sqm lot at bungalo type sya at foreclosed na sa isang bank. Around 1,3M last yr and huling amount nasabi sa akin ng bangko. Tapos po sir i have a lot sa isang subdivision which is only 95 sqm and plano ko sa near future na tatayuan sana ng bldg para gawing apartment 2-storey.And siguro ang budget ko lamang all in all 1.5M.Medyo pinag-iisipan ko po KUNG alin ang mas bigyan ko ng pansin yung bahay namin na pagmamay-ari na ng bank or mgpapatayo ng isang apartment? I know magkaiba sya kung apartment is for business yun at kung tutubusin ko ang bahay namin sa bank ay bahay lang sya talaga.So, alin po sir sa tingin ninyo mas dapat kong unahin? Sana po makapagbigay kayo sa akin ng payo. Salamat sir jay.

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  11. Another excellent post! I’ll be bookmarking this page and will be posting a link on my website. Thanks sir!

  12. Hi Jay,
    I personally heard your testimonial on internet marketing during the Feb 12-13 workshop of Jomar Hilario. I made it a point to list down your name so I could visit your site.

    Browsing thru your site, I found your materials very informative and very encouraging. I used to have a not so good impression and liking on real estate investing…for me it was something so technical and very hard to understand…until i read your articles… (some of them as I just started reading your blog last wed).

    Just like Jomar, you are very generous in sharing your materials….I have one major question though in the above article. But wait….let me apply what I have learned from Jomar by creating a link to my site…I hope you don’t mind…HERE’S THE LINK..
    .-= JM Mendoza´s last blog ..Top 8 Reasons Why Small Businesses Fail =-.

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    • Hi karlo, yes I will be making a post on this soon. I have onjust attended a seminar that helped refresh myself on how real property taxes are computed. Take note however that one variable which is the assessed value is always taken from the assessor’s office where the property is located. As to how they arrive at that amount, I can only speculate. Maybe when the Property Valuation Law is approved this will change. Thanks for visiting!

      • Hi Sir Jay,

        Thank you for sharing your knowledge to us… it is indeed very helpful.

        More power to you and to your wife.


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  17. Hi Dan, nice to see you again!As for the market values, the best way for me would be to get comparables. I would look for a similar property at the same area and check for how much are they being sold. You can look for For-Sale signs in the vicinity and call them up. If you happen to find a house that has just been sold, that serves as a good measure of current market values in the area. Another way would be to compute the replacement cost. Ask around or look for vacant lots in the area and get the cost/sqm then use this to compute the value of a lot the same size as the property you are looking at. You then compute the cost for the improvement by multiplying the floor area with 15K(this is the approximate cost to construct per sqm of floor area nowadays). Add that to the value of the lot then you get the replacement cost which gives you an idea how much one would spend if you were to construct a new house. Actually there are a lot more things to consider and I believe this deserves an entire post. This will be my next how-to article. Thanks for the idea!

  18. Hi Sir Jay,

    I am currently looking into foreclosed properties around cainta,pasig and marikina.I found some good properties in some bank listing but sometimes I have my doubts if those properties are really being sold below the market price. As a professional broker po what can you suggest is the easiest way to determine the market value or zonal value of a property.

  19. Hi Jeffrey, keep an eye out for properties on listings that have unusually big floor areas, many number of bathrooms and bedrooms, they might contain multiple apartment units. Sometimes they are only described as “lots w/ improvement”.

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  21. Hi Lyann, you’re welcome and thank you also for the kind words. You’re right, let’s keep on sharing so that we may all become financially free sooner.

  22. Hi Jay! Thank you for sharing this wealth of information to all of us..I got through your blog by accident and I am grateful I did! Like you and everyone else here, I am very much interested to invest in real estate. As I learn from you, it is my desire and hope to share these learnings to others in return..

  23. Hi Milex, one remedy would be to include a provision in the contract that the heirs of the seller shall also bound to what has been agreed upon by the original seller and the buyer. As for the exact wordings, I suggest that you have your lawyer draft this for you. I believe this topic deserves a new post so I can give further details. Thanks for dropping by and there’s no need to say sorry. All of us are newbies at one point, what matters is the willingness to learn is there right? =)

  24. hi sir,

    i have been following your blogs through the referral of my friend marlyn catapang. your blog is so informative and i have learned a lot especially the real estate thing….i just wonder about rent to own properties. i am contemplating to buy a property through rent to own but i’m hesistating right now because i believe that my interest as buyer is not so much “protected” i don’t know if i am right…what if i have been doing my part as lessee or buyer and have been religiously paying my responsibilities — suddenly the seller passed away, what shall be my remedies? what if at the end of the terms of our contract he is suddenly lost and has not issued a deed of sale in my favor yet…i hope you can help me sir…

    thank you and sorry…here is another newbie,


  25. Hi Teamchi, since it is quite common nowadays for townhouse projects to be converted to condominium projects, most townhouses have CCT’s

    As for the land, if I’m not mistaken, the land is held by the condominium corporation, which unit owners become part of, hence unit owners do become co-owners of the land.

    Since condominium owners have the right of absolute ownership of their unit, an act like putting another structure to replace the townhouse would be in direct violation of his absolute ownership. RA 4726, otherwise known as the Condominium Act, provides adequate protection for condo unit owners and you can read more by going here.

  26. Hi Jay,

    Looking forward to those posts.

    I inquired about a townhouse from a bank and they said that the townhouse has a CCT therefore, the land is not included in the purchase.

    1. Do all townhouses have CCT instead of TCT?
    2. Who owns the land if the townhouse title is a CCT?
    3. If it only has CCT, how is the buyer protected from the owner of the land? Like what if the owner decides to put up another structure to replace the townhouse you bought.

    Thank you in advance 🙂

  27. Hi Jerry, for homeowner sellers, you could first try to determine if they are highly motivated to sell. You could do this by asking why they are selling and how fast they need to sell. If they say reasons like “we are leaving the country and they need to sell in 1 month, etc…” then you could say they are highly motivated and ask if that’s their last price. By the way, I suggest you always let the seller be the first to say his/her price/terms. Also, just like what almost all books I have read on real estate suggests, the last thing you can ask would be “If I can pay in cash, how much would be the lowest you are willing to accept?”. From their answer you’d know their last price. If the price is right, and in case you don’t have enough cash, then you need to get investors to finance the deal or find other means, etc. Actually this is one topic to be discussed in a future post, please watch out for it! by the way, thanks for visiting!

  28. Any advice you can share in dealing with homeowner/ seller (not banks) regarding haggling the price. And, where do we start our figure to counter offer, liked you I set mine @ 2M but most of the time the asking is over and don’t want to exceed my magic #.

  29. Hi Kinitoy, for this example, I got the 9K figure for the annual real property tax from the bank and the insurance figure was based on a quotation I got when I was looking for property insurance for a friend and the normal property premium I got was 1K per 1M market value of real property. Anyway, I will also make a post on how to calculate real property taxes after creditable withholding taxes, which is almost ready, we are just looking for the most updated BIR revenue regulation to make sure the example we have written is still accurate. Thanks for visiting!

  30. Hi Lemuel, for listings that are not for public auction, while there is a minimum bid price, prices are still negotiable for most banks. The bank would still evaluate bids below the minimum bid price. What is important is that an offer is submitted as they just might accept it. If not, you can always negotiate further. =)

  31. Hi Jay,

    will the bank accepts an offer say less than 20%,30%,40% percent from the minimum bid value?

    nalilito lang po ako kasi di ba menimention naman nila kung how much is the minimum bid value, right?

    thanks for your insights…

  32. Hi teamchi,you’re welcome. As far as I know VAT is excluded in the asking price so I suggest that you ask for a computation for taxes from the bank officer so that there will be no surprises.

  33. Hi Jay,

    Thanks for the sample letter and for answering all my queries. That 44% discount sure is very inspiring. 🙂

  34. Hi teamchi, if you remember my example on the 9-door apartment in Pasig where I offered 1.9M, a 44% discount from its original asking of 3.4M and got accepted? I made that offer after the auction when no one made a bid on that property. =)

  35. Hi Teamchi, yes, VAT is also applicable to condominiums above 2.5M. Okay, will check my e-mail and reply to you from there.

  36. Hi Butch, yes my wife is a CPA-Lawyer, but as mentioned, she is not yet that well experienced in handling the full cycle of a real estate transaction, but she is well versed in taxes. I believe she is now getting more experience with BIR people at her current job, but not real estate related, at least not yet. I am encouraging her to learn the ins and outs of real estate, just like the transaction you mentioned on using corporations. We’ll get there soon as we are also planning on putting up our own corporation for this purpose. I believe her father’s consultancy is more related to accounting services.

    Thanks by the way for visiting and subscribing. Exactly my sentiments when I started to put everything online, it’s paperless, accessible from anywhere, and no more clutter and lost listings. Glad you liked it!

    Yes, I agree with you on some properties being overpriced, I guess banks just want more room for negotiations, but as you said, the current situation just might have a significant impact on their motivation to quickly dispose their non-performing assets. This should translate to lower prices for the benefit of investors and home buyers, I’ll make a post about this if I notice a trend. Thanks for visiting and enjoy your stay!

  37. Thanks Betty! I’ve been working on this since 4am this morning, hindi pa nga tapos. Pero sleep na muna ako. Later ko na answer other comments, hindi ko na kaya.

  38. Pahabol 🙂 What if a property did not sell in an auction, do you think making an offer for it at 40% less than the bank’s floor price would still be considered reasonable by the bank? Or by around how much/how many percent is a reasonable discount I should ask for an unsold property in an auction? Thanks again!

  39. Hi Jay,

    Is VAT also applicable to condominiums priced above 2.5M? Do buyers shoulder the VAT? I would also like to have a copy of the cover letter, I will send you an email in a while 😉 Thanks!

  40. I visited your blogsite & that of your wife's. Is she a CPA & a Lawyer too? I noticed from her blogs that she is not that well versed with real estate transactions & have not had experience with BIR people, but this was way back in the past. She also mentioned something about private practice. Can she now handle real estate transactions wherein we invest in another corporation's stocks by paying for it through our corporate properties? Her father is into consultancy related to banking? Is that loan packaging?

    We are in the real estate business. Used to build & sell but we have stopped during the asian crisis of 1997. I have subscribed to your Foreclosed Real Estate Blog recently. Its nice to have a copy of the listings in my computer instead of all those newspaper clippings! More power!

    We have kept track of these foreclosed properties since way back in the past and have made some offers but most of them are still overpriced, therefore no deals were done!!! Perhaps with the crisis now upon us banks will lower their bid prices some more to make it more reasonable as rental or development properties!

  41. Hi Noli, it turns out that residential lots valued below 1.5M are VAT exempt while residential House and lots valued below 2.5M are also VAT exempt. I suppose with the value of the property you are looking at, VAT is applicable.

  42. Hello Betty, I forgot to answer one of your questions. You can estimate the value of a property by checking the going rate for similar properties in the area. If it’s for personal use, I still think you should offer below the selling price by a least 40%, malay mo tanggapin nung bank. If not, okay lang, negotiate lang then submit ng bagong offer. Pag tinanggap agad offer mo, it means masyado kang generous =)

  43. hello betty, na excite naman ako bigla sayo! e-mail ko na lang sayo yung sample. Send ka na lang ng e-mail sa tapos reply ako with the sample letter. Mahirap kasi i-copy paste dito yon. Goodluck and pag pray ka rin namin!

  44. Hi Betty, yes you are correct for CGT and DST as these are for the account of the seller but sometimes bank will transfer it for the buyers account. VAT, if applicable, is for the account of the buyer.

  45. Hi Noli, glad to be of help, and thanks for dropping by. The sale of residential real estate valued below 2.5M are VAT exempt according to my notes for the Nov 2007 Brokers’ Licensure Exam. However, I just checked BIR’s website and it says only below 1.5M are exempt. I’ll check this with my wife to be sure and get back you you.

  46. Hi Dragoro,
    1.TCT and CCT stand for Transfer of Certificate of Title and Condominium Certificate of Title respectively. They are the legal documents that establish ownership of real estate.

    2.Possible reasons for asking for a discount are repair costs, you can even use a quotation from a contractor as reference, and you can also mention that repairs would take some time to finish before the property can be RFO and generate income.

    3. I prefer to be frank with my intentions so I can bargain with them. If I say I’m an investor, they would understand why I’m asking for a discount as I also need to make money.

    4. CGT and DST can also be for the account of the buyer, it’s really up to the seller to pass it on to the buyer, although normally its for the account of the seller. Sometimes a seller will only shoulder the CGT and DST based on the selling price and the CGT for the excess amount or difference between selling price and fair market value shall be shouldered by the buyer. I’ll make an example later about this for better understanding. =)

  47. Hi Jay, yes, I already got my blog branded and my badge PH INVESTOR is the first one displayed, thanks!

  48. what if the property is just land and for personal use? how would you know if your not offering too much or too little?

  49. Sir Dragoro and noli, CGT, DST and VAT are for the account of the seller but sometimes bank will transfer it for the buyers account.

    Tama po ba sir JAY?

  50. dear Mr. Jay,
    You really help people like us who are just starting. Thanks! I would like to ask if buying a foreclose property from a bank includes paying a 12%VAT?

  51. Hi again Jay, question po:

    1. What’s TCT or CCT?

    2. When submitting a bid, as an example of say, 40% below minimum bidding, what’s are possible valid reasons or scenarios that I have to give? Sorry if this is a very upfront question as I really have no idea.

    3. Am I required to state what my plans are for the property? Like live on the property or rent it out or tear down and build it up again?

    4. You mentioned that the CGT and DST are for the account of the seller which in this case is the bank right? Or does it apply to the buyer also?

  52. wow special mention ako, hehe, salamat po.
    first time investor kaya medyo overwhelming ang mga technical terms lalo na walang background in real estate.

    God bless your family..

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