Free landlord tool
Run the numbers on a rental before you buy it: net operating income, cap rate, cash flow and cash-on-cash return, with the two rules of thumb investors screen deals by.
Monthly cash flow
$71.51
Cap rate
6.41%
Cash-on-cash return
1.56%
Net operating income (yearly)
$16,027.80
Mortgage payment (monthly)
$1,264.14
1% rule
Falls short
Rent is 0.84% of the price; the rule asks for 1% or more.
50% rule
36%
Expenses and vacancy are 36% of the rent; the rule assumes about 50%.
Cash invested
$55,000.00
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Net operating income (NOI) is the rent you actually collect, after vacancy, minus the costs of running the property: property tax, insurance, repairs, management, HOA dues and the like. It leaves out the mortgage on purpose, so it describes the property rather than how you paid for it.
Cap rate is NOI divided by the purchase price. It lets you compare properties with each other regardless of financing: a $250,000 house earning $16,028 a year of NOI has a 6.41% cap rate.
Cash flow is what is left after the mortgage payment too, and cash-on-cash return is a year of cash flow divided by the cash you put in, the down payment plus closing costs. It is the return on your money rather than on the property.
The 1% rule says monthly rent should be at least 1% of the purchase price, so a $250,000 house should rent for $2,500 a month or more. It is a quick screen for whether a deal is worth a closer look, not a verdict.
The 50% rule says that, over the long run, operating expenses and vacancy eat about half the rent. If your estimate comes in far below 50%, check whether you have left out repairs, capital expenses or turnover.
A $250,000 house bought with 20% down and $5,000 of closing costs, on a 30-year loan at 6.5%, rents for $2,100 a month. Allow 5% vacancy, $3,600 a year of property tax, $1,200 of insurance, 5% of collected rent for repairs and 8% for management.
Collected rent is $23,940 a year and expenses are $7,912.20, so NOI is $16,027.80 and the cap rate is 6.41%. The mortgage payment is $1,264.14 a month, leaving $71.51 of monthly cash flow and a 1.56% cash-on-cash return on $55,000 invested. Rent is 0.84% of the price, short of the 1% rule.
These figures are estimates from the numbers you enter. They are not investment, tax or lending advice.
It depends on the market. Cap rates are lower where property values are high and expected to grow, and higher where prices are low and risk is higher. Compare a property's cap rate with similar rentals in the same area rather than with a national figure.
Cap rate measures the property's income against its price and ignores financing. Cash-on-cash return measures your cash flow, after the mortgage, against the cash you actually put in. A loan can make cash-on-cash much higher or lower than the cap rate.
In many expensive markets almost nothing meets it, so it is better used as a comparison between deals than as a pass or fail test. A property far below 1% needs strong appreciation or a large down payment to cash flow.
So that NOI and cap rate describe the property itself. Two buyers with different loans own the same building; NOI lets you compare it with any other building, and cash flow then shows what your own financing does to it.
Porchyard puts every property's income and expenses side by side, from the bank transactions you import and categorize, so you can see which rentals pay their way. Try it free for 30 days.