It looks like you may be confusing cash flow from income with return on investment. Your overall return on your invested capital can only be calculated after the property is sold. The ROIC can be calculated without considering the impact of taxes or you can calculate it after tax. You can estimate your ROIC assuming a sale price and selling expenses and projecting your intervening income and expense.

Here's a simplified example:

Buy a house for $100,000, put $20,000 down. Borrow $80,000 at 4 percent for 30 years.

For 10 years, rent the house for $12,000 per year, with annual expenses of $13,000 per year. Net loss is $1,000 per year.

The house appreciates at 3 percent per year and you sell it at the end of 10 years for $134,400 with $4,400 of selling expenses. The net sales price is $130,000. However, the mortgage principal has been paid down to $63,027. Your net from the sale, after paying off the mortgage, is $66,973.

For analyzing cash flows, money you put out is negative, and money you get back is positive. Here are the cash flows for the equity position:

Year 0 (starting point) -$20,000

Years 1-10 -$1,000

Year 10 +$66,973

Using the most simple, EOY cash flow timing and a handy HP 12C calculator, it looks like you made about 9.85 percent per year (compound rate of return) on this investment of $20,000.

What you are after here is estimating all the cash flows in and out for you, the holder of the equity position in the property. Then you determine at what discount rate the cash flows that happen after your initial investment will discount back to that initial investment.

This is a very basic example, but the principle is the same for more complicated cash flows.