Cash flow, cap rate, cash-on-cash return and the 1% rule.
Analyzing a rental before you buy separates good deals from money pits. This guide covers the key metrics, with a calculator for each.
A property's gross rent means little until you subtract every expense — taxes, insurance, management, maintenance, vacancy and financing. The Rental Property Calculator models the whole picture so you see real cash flow, not a rosy gross number. Negative cash flow means you're betting purely on appreciation.
Cap rate — net operating income divided by price — lets you compare properties independent of financing. The Cap Rate Calculator computes it. Higher cap rates suggest more income per dollar of price (often with more risk or work); lower ones often reflect pricier, lower-risk markets.
Because most investors use loans, cash-on-cash return — annual pre-tax cash flow divided by the cash you actually invested — measures how hard your real money is working. The Cash-on-Cash Calculator calculates it, capturing the effect of leverage that cap rate ignores.
The 1% rule (monthly rent at least 1 percent of price) is a fast filter for whether a deal is worth deeper analysis. The 1% Rule Calculator checks it. Treat it as a screen, not a verdict — strong markets rarely hit 1 percent, and hitting it doesn't guarantee a good deal.
Use realistic rents and expenses, budget for vacancy and capital repairs, and stress-test against higher rates and lower rents. The metrics agree on one thing: a deal must survive honest numbers. Confirm assumptions with local data before committing.
Real cash flow first, then cap rate and cash-on-cash return.
Net operating income divided by price — compares properties regardless of financing.
Annual pre-tax cash flow divided by the cash invested.
Monthly rent of at least 1% of price — a quick screen, not a guarantee.
No — underwrite with local data and professional input.