How to Analyze a Rental Property
A rental property makes money four ways at once: monthly cash flow, loan principal paid down by the
tenant, appreciation, and tax advantages. No single number captures all of it, which is why serious
investors watch four metrics together. This calculator projects every year of the hold — income,
expenses, loan balance and value — and reports all four: NOI, cap rate,
cash-on-cash return and IRR.
AdSense Space
(In-Article Fluid Banner)
The four numbers that matter
- NOI (Net Operating Income): rent collected (after vacancy) minus operating expenses and management — before the mortgage. It is the property’s own earning power, independent of how you financed it.
- Cap rate = NOI ÷ price: the unleveraged yield. Best for comparing properties against each other and against your mortgage rate: a cap rate below the loan rate means borrowing drags on returns in year one.
- Cash-on-cash return: annual cash flow after the mortgage, divided by the cash you actually put in (down payment + closing + repairs). This is the return on your dollars.
- IRR (Internal Rate of Return): the annualized return on every dollar for the time it is invested, including the sale at the end. It is the only one of the four that respects the time value of money, so it is the best single figure for comparing a rental against stocks or another property.
Two rules of thumb for a first pass
The 1% rule says monthly rent should be at least 1% of the total purchase cost (price plus
repairs): a $200,000 property should rent for $2,000 a month — exactly the default case above, which
is why it cash-flows. The 50% rule estimates that operating expenses consume about half of
gross rent over time, leaving the other half for the mortgage and profit; if a deal only works when
expenses are assumed at 20%, it probably does not work. Use both rules to screen listings in
seconds, then run survivors through the full projection. (Flippers use a third: the 70% rule —
pay no more than 70% of after-repair value minus repair costs.)
What the spreadsheet leaves out
Being a landlord is a job, not a coupon clip: finding and screening tenants, signing enforceable
leases, collecting rent, handling repairs and the occasional eviction. Management companies take
roughly 8–10% of rent to do it for you — model that with the management fee field before deciding
the deal is hands-off. And treat any multi-decade projection with humility: a recession, a special
assessment, a rent-control ordinance or one long vacancy lands harder than a tenth of a percent of
appreciation. Stress-test the deal with rent down 10% and vacancy up before you trust the IRR.
When you are ready to finance the purchase itself, the
mortgage calculator
breaks down the loan in full.
FAQ
What is a good cap rate?
Roughly 4–6% in expensive, low-risk markets and 8–12% in cheaper, riskier ones. Below your mortgage rate, leverage hurts year-one returns; well above it, ask what risk the market is pricing in.
What is cash-on-cash return?
Annual cash flow after all expenses and the mortgage, divided by the total cash you invested up front. It measures the return on your actual dollars, unlike cap rate, which ignores financing.
Why does IRR differ from cash-on-cash?
Cash-on-cash looks at one year’s rent only. IRR also counts principal paydown, appreciation and the sale proceeds, and discounts for time — a dollar in year 20 is worth less than a dollar in year 1.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute investment
or financial advice. Projections rest on your assumptions for rent growth, expenses, vacancy and appreciation;
actual results will differ. Taxes and depreciation are not modeled.