🏠 Rental Property Calculator
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Analyzes rental property returns using three key metrics: Cap Rate (Net Operating Income ÷ Purchase Price) shows property's return ignoring financing - good properties are 8%+ cap. Cash-on-Cash Return (Annual Cash Flow ÷ Down Payment) shows return on your actual invested capital - target 8-12%. 1% Rule (Monthly Rent ÷ Purchase Price) is a quick screening tool - rent should be at least 1% of purchase price monthly.
NOI (Net Operating Income) = Gross Rent - Operating Expenses (taxes, insurance, maintenance, vacancy). Cash Flow = NOI - Debt Service. Positive cash flow means property pays for itself plus profit monthly.
Purchase: $300,000, 20% down ($60k), 7% rate | Rent: $2,400/month ($28,800/year) | Expenses: $3,600 tax + $1,200 insurance + $2,880 maintenance (10%) + $2,304 vacancy (8%) = $9,984/year
NOI: $28,800 - $9,984 = $18,816 | Debt Service: $1,596/month × 12 = $19,152/year | Cash Flow: -$336/year (Negative!)
Cap Rate: $18,816 ÷ $300,000 = 6.3% | Cash-on-Cash: -$336 ÷ $60,000 = -0.6% | 1% Rule: $2,400 ÷ $300,000 = 0.8%
Verdict: Poor investment - negative cash flow, fails 1% rule, low cap rate. You'd lose money monthly. Pass on this property or negotiate to $240k purchase price to improve metrics.
Target 8-12% cap rate in most markets. A-class properties (new, nice areas) = 5-7% cap. B-class (good condition, decent areas) = 7-9% cap. C-class (older, rougher areas) = 9-12%+ cap but higher risk. Lower cap rates mean expensive property relative to rent - slow appreciation but stable tenants. Higher cap rates mean cheaper property but more management headaches, vacancies, and repairs. Match cap rate to your risk tolerance and management capacity.
Negative cash flow is acceptable ONLY if: (1) You're banking on strong appreciation (risky - not guaranteed), (2) You have reserves to cover losses for years, (3) It's a temporary phase (rents rising, mortgage paying down), (4) Tax benefits offset losses (depreciation, interest deduction). Most investors require positive cash flow from day one - tenants pay your mortgage while you build equity. Negative cash flow means you're subsidizing tenants - that's not investing, that's losing money hoping property appreciates.
The 1% rule is a quick screening tool but not gospel. In expensive markets (SF, NYC, LA), 0.6-0.8% is typical - 1% is rare. In cheaper markets (Midwest, South), 1.2-1.5% is achievable. Use 1% rule to quickly eliminate bad deals, then analyze survivors with full cap rate and cash flow calculations. A property at 0.9% might work fine if appreciation is strong and expenses are low. Don't blindly reject at 0.95% or accept at 1.05% - run the full numbers.