Rental Property Calculator
Property Details
Rental Income
Operating Expenses
Key Metrics Guide
Related Calculators
Analyzing Rental Property Investments
Understanding Rental Property Returns
Real estate investing offers multiple ways to build wealth: cash flow, appreciation, loan paydown, and tax benefits. Understanding key metrics helps you evaluate whether a property is a good investment.
The Four Wealth Builders
Key Investment Metrics
Cap Rate (Capitalization Rate)
Measures return if you paid all cash. Useful for comparing properties regardless of financing. Higher cap rate = higher return but often higher risk.
Cash-on-Cash Return
Measures actual return on money you put in. Accounts for financing. Most useful for comparing investments with similar leverage.
NOI (Net Operating Income)
Income before debt service (mortgage). Does not include mortgage payments, capital expenditures, or depreciation. Standard industry metric.
DSCR (Debt Service Coverage Ratio)
Shows ability to cover loan payments. Lenders typically require 1.20-1.25 minimum. Higher is safer - more cushion for vacancies or repairs.
Quick Screening Rules
| Rule | Formula | Purpose |
|---|---|---|
| 1% Rule | Monthly Rent >= 1% of Price | Quick cash flow screen |
| 2% Rule | Monthly Rent >= 2% of Price | Strong cash flow markets |
| 50% Rule | Expenses = 50% of Rent | Quick NOI estimate |
| 70% Rule (Flips) | Max Price = 70% ARV - Repairs | Max purchase for flips |
Common Operating Expenses
Accurate expense estimation is crucial. Many new investors underestimate costs. Use these typical ranges as a guide:
| Expense | Typical Range | Notes |
|---|---|---|
| Property Taxes | 0.5% - 2.5% | Of property value, varies by location |
| Insurance | $800 - $2,500/yr | Landlord policy required |
| Vacancy | 5% - 10% | Of gross rent |
| Maintenance/Repairs | 8% - 12% | Of gross rent, higher for older homes |
| Property Management | 8% - 10% | Of collected rent + placement fee |
| CapEx Reserve | 5% - 10% | Roof, HVAC, appliances |
What Makes a Good Deal?
Good Investment Signs
- Positive cash flow from day one
- Cap rate above 6-7%
- Cash-on-cash return 8%+
- Meets 1% rule (or close)
- DSCR above 1.25
- Growing rent market
Red Flags
- Negative cash flow
- Relying on appreciation only
- Deferred maintenance
- Declining neighborhood
- Below-market rent on existing tenants
- Too-good-to-be-true numbers
Due Diligence Reminder
This calculator provides estimates based on your inputs. Before purchasing any investment property, verify all numbers with actual quotes, inspect the property thoroughly, review rent comparables, and consult with local real estate professionals. Past performance and projections do not guarantee future results.
Frequently Asked Questions
What is a good cap rate for rental property?
Cap rates of 5-10% are generally considered good, but it varies by market and property type. Higher cap rates (8-10%+) indicate higher potential returns but often come with more risk or lower-quality properties. In expensive coastal markets, 4-6% may be acceptable. Compare cap rates within the same market and property class for meaningful comparisons.
How do I calculate cash-on-cash return?
Cash-on-cash return = Annual Pre-Tax Cash Flow / Total Cash Invested. For example, if you invested $50,000 (down payment + closing costs) and receive $5,000 in annual cash flow, your cash-on-cash return is 10%. This metric shows the actual return on your out-of-pocket investment, accounting for financing.
What is the 1% rule in real estate investing?
The 1% rule is a quick screening tool: monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for $2,000/month minimum to potentially cash flow. The 2% rule is more conservative. These are starting points - always do full analysis including all expenses.
What expenses should I include in rental property analysis?
Include: property taxes, insurance, property management (8-10%), vacancy allowance (5-10%), maintenance/repairs (8-12% of rent), CapEx reserves (5-10%), HOA fees, utilities (if landlord pays), lawn care, and pest control. Many investors underestimate expenses - the 50% rule estimates operating expenses at 50% of rent before mortgage.