Rental Property Calculator

NOI, cap rate and cash-on-cash answer different questions

Net operating income is rental income minus operating expenses, with the mortgage deliberately excluded. That exclusion is the point: NOI describes the property itself, so two investors with different financing can compare the same building. Cap rate is NOI divided by price — the return if you paid cash. Cash-on-cash divides actual annual cash flow by the cash you actually put in, which is the number that answers "what does my money earn here". A leveraged deal can have a modest cap rate and a strong cash-on-cash, or the reverse when rates are high.

The expenses beginners leave out

Rent minus mortgage is the classic first-timer mistake. Vacancy alone takes a few percent of gross rent every year even in a strong market. Maintenance and capital repairs average far more than new landlords expect over a full ownership cycle, and property management runs around 8–10% of rent if you are not doing it yourself. Add taxes and insurance and a deal that looked like clear profit can be break-even.

The 1% rule is a filter, not an answer

The old heuristic — monthly rent should be at least 1% of purchase price — is a fast screen for whether a deal is worth analyzing, not a verdict. It ignores taxes, which vary enormously by state, and it was calibrated in a different interest-rate era. Use it to sort a list quickly, then use the cash flow and cash-on-cash figures above to decide.

What this analysis does not price

Three real sources of return sit outside these numbers. Principal paydown quietly builds equity every month as the tenant covers the mortgage. Appreciation may add more than cash flow over a long hold, though it is not guaranteed and should never be the reason a deal works. Depreciation is a tax deduction that can shelter part of the cash flow from income tax, then gets recaptured on sale. A property with thin cash flow can still be a reasonable long-run investment through those channels — but a property with negative cash flow requires you to fund it every month regardless, which is a very different risk.

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