Rental Property Calculator

There is no universal "good" cap rate — it depends entirely on the market, property type and your required return. Class-A urban properties in high-demand markets typically trade at 3–5% cap rates; class-B and C properties in secondary markets often trade at 6–9%. A higher cap rate means more income per dollar of purchase price, but also tends to reflect higher risk, more intensive management or a weaker location. Compare cap rates within the same market and property class rather than across them.

Cap rate ignores your financing — it measures the income yield on the full property value regardless of how much you borrowed. Cash-on-cash return measures the after-debt-service cash flow as a percentage of the cash you actually invested (down payment + closing costs + rehab). Two identical properties with the same cap rate can have very different cash-on-cash returns depending on how much leverage you use and what interest rate you pay.

Most conventional lenders require a DSCR of 1.20–1.25 or higher on investor properties, meaning the property's NOI must exceed the mortgage payment by 20–25%. Fannie Mae's guidelines for rental income qualification are tied to DSCR thresholds that vary by number of financed properties. DSCR-specific loan programs (common for real estate investors) use the property's own DSCR — often requiring 1.0 or higher — to qualify without considering the borrower's personal income.

The 1% rule says monthly rent should be at least 1% of the purchase price to likely produce positive cash flow — $200,000 property needs $2,000 per month. It is a quick screening filter, not a substitute for full analysis. In many high-cost markets (coastal cities, for example) 0.5–0.7% is typical and properties still pencil out with enough appreciation. Use it to quickly filter a list of properties, then run the full calculator on those that make the cut.

GRM is the purchase price divided by annual gross rent — it tells you how many years of gross rent the purchase price equals. A $300,000 property renting for $2,000 per month ($24,000 annually) has a GRM of 12.5. Lower GRM generally means a better income-to-price ratio. GRM is simpler than cap rate because it ignores expenses, making it useful only for quick comparisons between similar properties in the same market.

Residential rental properties are depreciated straight-line over 27.5 years under IRS Publication 527. The depreciable basis is the purchase price plus acquisition costs plus improvements, minus the land value (land is not depreciable). A $300,000 property with $30,000 land value has a $270,000 depreciable basis and $9,818 in annual depreciation. This reduces your taxable rental income on Schedule E. Whether you can deduct it depends on passive-activity rules and your income — consult a tax professional.

NOI (Net Operating Income) includes all operating expenses: property taxes, insurance, property management fees (typically 8–12% of rents), maintenance and repairs (often estimated at 1–1.5% of value annually), capital expenditure reserves (another 1–2% of value for major replacements), HOA fees, utilities paid by the owner and vacancy allowance. NOI excludes the mortgage payment, income taxes and depreciation. The mortgage payment is subtracted from NOI to get cash flow.

A 5–8% vacancy rate is a common planning assumption for single-family and small multifamily rentals in average markets; higher-turnover markets may see 10% or more. Full-service management typically runs 8–12% of rent. This calculator charges the management percentage on gross scheduled rent (before vacancy), the cautious reading; if your agreement charges on collected rent, the true fee is lower by the vacancy share — $132 a year at the defaults. The 10% and 5% defaults are illustrative; set your own.

Here it is charged on gross scheduled rent — monthly rent × 12 before vacancy — and so is the capex reserve. That is how many management agreements quote the fee, and it errs on the cautious side. If yours charges on rent actually collected, the fee is smaller by the vacancy share: at the defaults 10% of $26,400 is $2,640 against $2,508 on the $25,080 collected, a $132-a-year difference. Lower the management percentage slightly to model that.

Because financing and expenses, not rent alone, decide cash flow. At the defaults the rent is 0.63% of the price and the mortgage payment of $1,835 is 83% of the rent; with tax, insurance, maintenance, management and a capex reserve the property loses $817 a month even though NOI is positive at $12,220. A larger down payment, a lower rate or a higher rent changes that; the break-even rent line shows the rent at which cash flow is zero.