Rental Property
Free Rental Property for financial. Enter your values to compare options, see amortization, and plan smarter. Free, formula-verified, no signup needed.
Formula
Cash Flow = NOI - Mortgage
NOI (Net Operating Income) = Gross rent - Expenses. Cash flow = NOI - Debt service. Cap rate = NOI ÷ Purchase price.
Worked Examples
Example 1: Complete Rental Property Analysis
Problem:$300,000 property, 20% down ($60K), $2,200/month rent. Calculate all key metrics.
Solution:Gross annual rent: $2,200 × 12 = $26,400 Expenses: Vacancy (8%): -$2,112 Property tax: -$3,600 Insurance: -$1,200 Maintenance: -$2,400 Management (10%): -$2,640 Total expenses: -$11,952 NOI: $26,400 - $11,952 = $14,448 Mortgage ($240K, 7%, 30yr): $1,596/mo = $19,152/yr Annual cash flow: $14,448 - $19,152 = -$4,704 Negative! This deal doesn't cash flow. Cap rate: $14,448 / $300K = 4.8% Cash-on-cash: -$4,704 / $60K = -7.8%
Result:Negative cash flow - not a good deal at this price
Example 2: Making a Deal Work
Problem:Same property but negotiated to $260,000, rent raised to $2,400.
Solution:New gross rent: $2,400 × 12 = $28,800 Expenses: Vacancy (8%): -$2,304 Property tax: -$3,600 Insurance: -$1,200 Maintenance: -$2,080 Management (10%): -$2,880 Total: -$12,064 NOI: $28,800 - $12,064 = $16,736 Mortgage ($208K, 7%, 30yr): $1,383/mo = $16,596/yr Annual cash flow: $16,736 - $16,596 = +$140 Barely positive but you also get: - Principal paydown: ~$4,200/yr - Depreciation tax benefit: ~$7,500 - Potential appreciation Cap rate: 6.4% | Cash-on-cash: 0.3%
Result:Marginally positive - total return better than cash flow shows
Example 3: House Hacking Strategy
Problem:Duplex $400K, 5% down (primary residence). Live in one unit, rent the other for $1,800/month.
Solution:Your costs: Mortgage + PMI ($380K, 6.5%): $2,602/mo Taxes/insurance: $500/mo Maintenance: $200/mo Total: $3,302/mo Rental income: -$1,800/mo Your net housing cost: $1,502/mo Compare to renting: Similar unit rent: $1,600/mo You're paying LESS than renting while building equity! When you move out (after 1 year): Both units rented: $3,600/mo Expenses: $3,302 + management Positive cash flow achieved.
Result:Live nearly free, then cash flow when you move
Frequently Asked Questions
What is cap rate?
Capitalization rate = Net Operating Income ÷ Purchase Price. It measures property return independent of financing. Good cap rates: 5-10% depending on market. Higher cap = higher return but often higher risk. Doesn't include mortgage payment - purely property performance.
What is cash-on-cash return?
Annual pre-tax cash flow ÷ Total cash invested. Measures return on YOUR money (including leverage). Good: 8-12%+. Unlike cap rate, it accounts for mortgage. High leverage can boost cash-on-cash but increases risk. Compare to what you'd earn elsewhere with that cash.
What is NOI (Net Operating Income)?
Gross rental income minus operating expenses (taxes, insurance, maintenance, management, vacancy). Does NOT include mortgage payment or depreciation. NOI ÷ Cap rate = Property value. It's the key metric for valuing income properties and comparing deals.
How much vacancy should I budget for?
Typically 5-10% of gross rent for residential. Accounts for turnover between tenants and time to find new renters. In hot markets: 5%. In slower markets: 8-10%. Also consider eviction risk in your area. Always include vacancy even for occupied properties.
What expenses should I include?
Monthly: mortgage, property taxes, insurance, HOA, property management (8-10%). Annual: maintenance (1-2% of value), landscaping. Reserves: major repairs (roof, HVAC, appliances). Often underestimated: turnover costs (painting, cleaning, vacancy). Include ALL costs for accurate analysis.
Is the 1% rule still valid?
The 1% rule: monthly rent should be ≥1% of purchase price ($3,000 rent on $300K property). It's a quick screen, not a complete analysis. In expensive markets, 0.7-0.8% may be acceptable with appreciation potential. In cheaper markets, aim for 1.5%+. Always do full cash flow analysis.
What is GRM (Gross Rent Multiplier)?
GRM = Purchase Price ÷ Annual Gross Rent. Quick comparison metric. Lower GRM = better deal (paying less per dollar of rent). Example: $300K ÷ $30K rent = 10 GRM. Typical range: 8-15. Doesn't account for expenses, so use alongside NOI analysis.
How much down payment for investment property?
Typically 20-25% minimum for conventional loans. Investment properties require larger down payments than primary residences. Some options: 15% with PMI, house hacking (live in one unit, smaller down), DSCR loans (based on property income). Larger down payment = better cash flow but less leverage.
Should I manage the property myself?
Self-management saves 8-10% but requires time: tenant screening, rent collection, maintenance coordination, legal compliance, 3am calls. Worth it for: local properties, few units, hands-on personality. Property management makes sense for: distant properties, many units, limited time, or scaling.
What about appreciation vs cash flow?
Cash flow: income exceeds expenses, money in pocket. Appreciation: property value increases over time. Best: both. High-cost markets may have low cash flow but strong appreciation. Midwest often has great cash flow but less appreciation. Know your strategy - neither is wrong.
Background & Theory
Rental property analysis requires understanding multiple metrics and realistic expense projections. Many first-time investors overestimate income and underestimate expenses.
Key Metrics:
| Metric | Formula | Good Target |
|---|---|---|
| Cap Rate | NOI ÷ Price | 5-10% |
| Cash-on-Cash | Cash Flow ÷ Cash Invested | 8-12%+ |
| GRM | Price ÷ Gross Annual Rent | 8-12 |
| 1% Rule | Monthly Rent ÷ Price | ≥1% |
Income Calculation:
Gross Potential Rent
- Vacancy Loss (5-10%)
= Effective Gross Income
- Operating Expenses
= Net Operating Income (NOI)
- Debt Service (mortgage)
= Cash Flow
Operating Expenses (Rule of 50):
Expect ~50% of gross rent for expenses:
- Property taxes: varies by location
- Insurance: 0.5-1% of value
- Maintenance: 1-2% of value
- Property management: 8-10% of rent
- Vacancy: 5-10% of rent
- Utilities (if included): varies
- HOA fees: varies
Debt Service Coverage Ratio (DSCR):
DSCR = NOI ÷ Annual Debt Service
- <1.0 = Negative cash flow
- 1.0-1.2 = Breakeven to slim margin
- 1.25+ = Healthy cushion
Hidden Costs Often Missed:
- Turnover: painting, cleaning, repairs between tenants
- Capital expenditures: roof, HVAC, appliances
- Legal fees: evictions, lease preparation
- Accounting: tax preparation
- Lost rent during repairs/turnover
Financing Options:
| Loan Type | Down Payment | Notes |
|---|---|---|
| Conventional | 20-25% | Best rates |
| DSCR | 20-25% | Based on property income |
| Commercial | 25-35% | For 5+ units |
| Hard money | 20-30% | Short-term, higher rate |
| Seller financing | Negotiable | Creative deals |
Analysis Process:
- Estimate gross rent (comp analysis)
- Subtract vacancy allowance
- List ALL operating expenses
- Calculate NOI
- Determine financing costs
- Calculate cash flow
- Compute return metrics
- Stress test assumptions