What is a good ROI on a rental property?
It depends on your market and strategy. Cash-on-cash returns of 6–12% are typical for healthy buy-and-hold deals; below 4% is hard to justify versus simpler investments. Cap rates range from about 4% in expensive coastal markets to 10%+ in cheaper midwest and southern markets. Total annualized ROI of 10–15% over a decade is considered strong.
What is the 1% rule?
A property's monthly rent should be at least 1% of the purchase price. A $200,000 home should rent for $2,000 or more. Properties passing the 1% rule typically generate positive cash flow at conventional financing. It's a quick filter — not a guarantee — and is increasingly hard to find in expensive markets.
What is the 50% rule?
Roughly 50% of gross rent goes to operating expenses (taxes, insurance, management, maintenance, capex reserves, vacancy), excluding the mortgage. It's a quick way to estimate NOI: half of gross rent is roughly your NOI. Use it for screening; run full numbers for any deal you'd actually buy.
What is cash-on-cash return?
Annual cash flow divided by total cash invested (down payment + closing costs + initial repairs). It measures the year-1 return on the money you actually committed, accounting for financing. It's the most-quoted ROI metric for buy-and-hold landlords because it answers "what does my cash earn this year?"
What is cap rate and why does it matter?
Cap rate is annual NOI divided by purchase price, ignoring financing. It measures the property's underlying yield independent of leverage and lets you compare deals on equal footing. Higher cap rates mean higher yields but often more risk. In stable US markets cap rates typically range 5–10% for residential rentals.
What is DSCR?
Debt Service Coverage Ratio = NOI ÷ annual mortgage payment. A DSCR of 1.0 means the property's operations exactly cover the loan payment; 1.25 is considered healthy. Many investment-property lenders require at least 1.20. Below 1.0 means the property doesn't generate enough to cover its own debt — risky.
How much should I budget for vacancy and maintenance?
Typical vacancy is 5–8% of gross rent in stable markets, more in transient areas. Maintenance is usually 5–10% of rent for ongoing repairs, plus 5–10% for capex reserves (roofs, HVAC, water heaters). Newer properties run lower, older properties higher. Always budget reserves — surprise repairs are the biggest threat to first-year cash flow.
Does this account for tax benefits like depreciation?
No. Tax treatment of rental properties is complex and varies by country. In the US, depreciation can produce substantial tax shelter on rental income, often making after-tax returns higher than pre-tax. The calculator shows pre-tax cash flow and returns; consult a tax professional to model your specific after-tax outcome.
What's the difference between cap rate and cash-on-cash?
Cap rate ignores financing — it's NOI ÷ price. Cash-on-cash includes financing — annual cash flow (after mortgage) ÷ total cash invested. A property might have a 6% cap rate but 9% cash-on-cash thanks to leverage, or 6% cap rate and 4% cash-on-cash if the loan rate is high. Both matter.
Should I use a property manager?
Property management typically costs 8–12% of gross rent plus tenant placement fees. It's worth it for out-of-state investors, busy professionals, or those who'd otherwise need to hire help. Self-management saves money if you have local proximity, time, and willingness to handle tenant issues. This calculator includes a management fee by default — set to 0% to model self-management.
How do I value a rental property?
Three common approaches: (1) cap rate — divide NOI by the local market cap rate, (2) comparable sales — what similar properties have sold for, (3) gross rent multiplier — typical local price-to-rent multiples. Most investors triangulate all three. This calculator shows cap rate and GRM so you can sanity-check valuations.
How accurate is this rental property calculator?
The math is precise for your inputs. Accuracy depends on how realistic your assumptions are — especially vacancy, maintenance, capex, rent growth, and appreciation. Real deals always surprise on at least one of these, so leave a margin of safety. Test downside scenarios by lowering rent growth and appreciation and raising vacancy.
