Rental Property Calculator
Check whether a rental property pays for itself and what it returns.
Judging a rental
A rental is an income business. The key numbers are the net operating income (rent minus running costs, before the mortgage), the cap rate (NOI as a share of the price), the cash flow after the mortgage and the cash-on-cash return, which measures yearly cash flow against the cash you put in.
Example
A 250,000 property with 25% down at 7% rents for 2,000 a month. After 5% vacancy, management, tax, insurance and maintenance, net operating income is about 14,276 a year (a 5.7% cap rate). The mortgage costs about 1,247 a month, so cash flow after the mortgage is about −693 a year, a cash-on-cash return of about −1%, and the debt service coverage ratio is 0.95. On these numbers the property does not pay for itself.
Not included: income tax, depreciation, price growth, loan principal paid down, big repairs and periods when you pay both the mortgage and the costs without a tenant. A positive cash flow with a healthy margin is a good sign, but local rules and market risk matter too.
Frequently asked questions
What is a good cap rate?
It depends on the market and risk. Higher cap rates often mean higher risk or a weaker area.
What is the 1% rule?
A quick screen that monthly rent should be at least 1% of the price. It is only a rough guide.
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