ποΈ Rental Property Calculator
Cap rate, cash-on-cash, cash flow, and the 1% rule.
After all expenses and mortgage
Estimates for planning only, not financial advice.
How to Use This Calculator
Enter the purchase price and expected monthly rent, then your financing: down payment percent, closing costs, loan rate, and term. Add the operating expenses: property tax, insurance, HOA, and realistic allowances for vacancy, maintenance, and management as percentages of rent. The calculator produces monthly cash flow, cap rate, cash-on-cash return, and the 1% rule test.
Enter the Purchase Price and the Monthly Rent you can realistically charge, based on comparable rentals, not the listing agent's optimism.
Enter your financing: Down Payment %, Closing Costs, Loan APR, and Term. Investment-property rates run higher than owner-occupied rates.
Enter operating expenses honestly: tax, insurance, HOA, plus vacancy, maintenance, and management percentages. Never leave these at zero.
Read cash flow first (it must be positive with margin), then cap rate and cash-on-cash, then the 1% rule screening result.
The Metrics That Matter
NOI is the property's operating profit before financing, which is why cap rate uses it: the metric describes the asset, not your loan. Cash flow is what hits your bank account after the mortgage, and cash-on-cash tells you what your invested dollars earn. The 1% rule is a coarse filter from an era of lower prices; treat a pass as "worth analyzing" and a fail as "needs appreciation to justify," not as an automatic rejection.
Worked Example
Purchase price $300,000, rent $2,500 a month, 20 percent down ($60,000), $9,000 closing costs, 6.75 percent APR for 30 years. Loan = $240,000, P&I = $1,556.64 a month. Monthly costs: tax $300, insurance $100, vacancy 5% = $125, maintenance 5% = $125, management 8% = $200. Total monthly outlay = $2,406.64 against $2,500 rent, leaving cash flow of $93.36 a month, or $1,120 a year. Effective annual income = $28,500; operating expenses = $8,700; NOI = $19,800; cap rate = 6.60 percent. Cash invested = $69,000; cash-on-cash = 1.62 percent. The 1% rule: $2,500 / $300,000 = 0.83 percent, a fail. Verdict: thin cash flow with no margin for a surprise repair; this deal needs cheaper financing, a lower price, or higher rent.
What Makes a Rental Deal Work
Cash flow is king, and margin is the kingdom. A property netting $93 a month is one water heater away from a losing year; experienced investors want at least $200 to $300 a month per unit after honest expenses, plus six months of expenses in reserves before buying. The silent deal-killers are the expenses beginners skip: budget 5 percent for capital expenditures (roof, HVAC, appliances) on top of routine maintenance for older homes, and never assume zero vacancy. Stress-test every deal: what happens if rent drops 10 percent, if the rate is 1 point higher at refinance, or if the property sits empty for three months? If the deal still cash-flows, it is a deal.
Appreciation vs Cash Flow Markets
US rental markets split roughly in two. Cash-flow markets in the Midwest and South offer 7 to 10 percent cap rates and strong monthly income but modest appreciation; these are where the 1% rule still passes. Appreciation markets on the coasts offer 4 to 5 percent cap rates, thin or negative cash flow, and wealth built through rising values and rent growth. Neither is wrong, but they demand different strategies: cash-flow markets reward buy-and-hold income investing, while appreciation markets are speculation on growth and require deeper reserves to survive the lean years. Know which game you are playing before you make an offer.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is cap rate?
The capitalization rate measures a property's unleveraged return: net operating income divided by purchase price. A property with $18,800 of annual NOI on a $300,000 price has a 6.27 percent cap rate. Because it ignores financing, cap rate lets you compare properties and markets apples to apples. Higher cap rates usually mean higher returns but also higher risk, weaker neighborhoods, or older buildings.
What is cash-on-cash return?
Cash-on-cash return measures what your actual cash earns: annual pre-tax cash flow divided by the total cash you invested (down payment plus closing costs). If you put $69,000 down and the property nets $1,120 a year after all expenses and the mortgage, your cash-on-cash return is 1.62 percent. Unlike cap rate, it reflects your leverage: the same property with less down shows a higher cash-on-cash return but thinner monthly safety margin.
What is the 1% rule in real estate?
The 1% rule says a rental's monthly rent should be at least 1 percent of its purchase price to have a shot at positive cash flow. A $300,000 property needs $3,000 a month in rent to pass. It is a quick screening filter, not a verdict: many solid properties in expensive coastal markets fail it while appreciating strongly, and many that pass it sit in declining areas. Use it to filter listings, then run the full numbers here.
What expenses should I include in a rental analysis?
All of them: mortgage principal and interest, property tax, insurance, HOA dues, vacancy allowance (5 to 10 percent of rent), maintenance and repairs (5 to 10 percent), property management (8 to 12 percent even if you self-manage today, because your time has value), and capital expenditure reserves for roofs, HVAC, and appliances. Beginners most often forget vacancy and capex, which is why their "great deal" turns cash-flow negative in year two.
What is a good cap rate for a rental property?
Context decides. In expensive coastal US markets, 4 to 5 percent cap rates are normal and investors accept them for appreciation potential. In Midwest and Southern cash-flow markets, 7 to 10 percent is common. Compare against local alternatives rather than national averages: a 6 percent cap rate is mediocre where 9 percent deals exist and excellent where 4 percent is the norm. Also compare against the risk-free rate; when Treasury yields are 5 percent, a 5 percent cap rate offers no premium for the extra risk.
How does leverage change my rental returns?
Leverage magnifies everything. With 20 percent down, a 6.27 percent cap-rate property might produce only 1.6 percent cash-on-cash after debt service, because the mortgage eats most of the NOI. With 40 percent down, the same property could show 4 to 5 percent cash-on-cash with a much safer monthly margin. More leverage boosts returns when things go well and accelerates losses when a roof fails or a tenant stops paying, so match your down payment to your risk tolerance and reserves.