How to analyze a rental property
The calculator starts with rent, subtracts vacancy and operating expenses to get net operating income, then subtracts the mortgage to get cash flow. From those it works out cap rate and cash on cash return.
The formula
Cash flow = rent − vacancy − operating expenses − mortgage payment
Worked example
Rent of $2,000, vacancy of $100, expenses of $700 and a mortgage of $900 leave $300 a month in cash flow.
How to use this calculator
Enter the purchase price, down payment, interest rate, loan term, and closing and repair costs. Then enter the monthly rent, vacancy, property tax, insurance, maintenance, management and other costs. The rental property calculator returns monthly cash flow, net operating income (NOI), the mortgage payment, cap rate, cash on cash return, cash invested and operating expenses per year. Use realistic expenses, not the seller’s best-case figures, and run the numbers again with lower rent to see how much margin you have.
What the result means
Each output answers a different question. To show them together, extend the example above. Assume a $200,000 price, $50,000 down and a $150,000 loan. At an example rate of 6% over 30 years, principal and interest is about $899, which matches the $900 mortgage.
| Measure | How it is worked out | Result |
|---|---|---|
| NOI | ($2,000 − $100 − $700) × 12 | $14,400 a year |
| Cash flow | $300 × 12 | $3,600 a year |
| Cap rate | $14,400 ÷ $200,000 | 7.2% |
| Cash on cash return | $3,600 ÷ $56,000 cash invested | 6.4% |
| DSCR | $14,400 ÷ $10,800 of loan payments | 1.33 |
The $56,000 of cash invested is the $50,000 down payment plus an example $6,000 of closing costs, which is 4% of the loan. Cap rate ignores the loan, so it lets you compare properties. Cash on cash return measures what your own money earns after the loan is paid. DSCR is not shown by this calculator, but it is included here because it shows how well the income covers the debt. Many lenders prefer 1.20 to 1.25 or higher on loans that qualify on the property’s income.
More examples
Small changes move cash flow a long way, because the mortgage and most expenses do not fall when income does.
| Scenario | Monthly cash flow |
|---|---|
| Base case | $300 |
| Rent drops to $1,800, vacancy stays at 5% ($90) | $110 |
| Loan rate is 7% instead of 6% (payment about $998) | $202 |
| Expenses rise by $100 a month | $200 |
A 10% drop in rent cuts cash flow by almost two thirds in this example.
What changes the result
- Rent. It is the top line, so every dollar of rent you gain or lose goes almost straight to cash flow.
- Vacancy. The example allows $100 a month, which is 5% of the rent. One empty month a year is about 8%.
- Operating expenses. They lower NOI, cap rate and cash flow together.
- Financing. The rate, the term and the down payment change cash flow and cash on cash return. They do not change NOI or cap rate.
Common mistakes
- Leaving out vacancy. No unit is rented every month forever.
- Skipping a reserve for big replacements such as a roof or a furnace.
- Counting the mortgage as an operating expense. It comes out after NOI.
- Stopping at the 1% rule. In the example, $2,000 rent on a $200,000 price passes exactly, but the rule says nothing about expenses or financing.
- Judging by cash flow alone. $300 a month means little until you compare it with the cash you put in.
Related calculators
Work on one measure at a time with the NOI calculator, the cap rate calculator, the cash on cash return calculator and the DSCR calculator.
Frequently asked questions
What is the 1% rule?
A quick screen: monthly rent should be about 1% of the purchase price.
What is the 50% rule?
A rough estimate that operating expenses take about half of the rent, before the mortgage.
What expenses should I include?
Property tax, insurance, repairs, management, vacancy, utilities you pay, and a reserve for big replacements.
What is the difference between cap rate and cash on cash return?
Cap rate is NOI divided by the price, as if you paid cash. Cash on cash return is yearly cash flow divided by the cash you actually invested, so it reflects your loan.
Is negative cash flow always a bad sign?
It means you add money every month to hold the property. Some investors accept that for expected appreciation, but the calculator cannot predict price growth, so treat it as a risk.
Does cash flow include the principal I pay down?
No. The whole mortgage payment is subtracted. The principal part builds equity, but it is not cash you can spend.
Does the calculator include income tax?
No. The results are before tax. Depreciation and other deductions change the after-tax picture, so ask a tax professional about your situation.