How to use the rental property calculator
- Enter the purchase price, your down payment percent (100 for all cash), the interest rate and loan term, and the cash you will spend on closing costs and up-front repairs.
- Enter the monthly rent, any other income and a vacancy percent. The defaults are examples, so use what fits your market.
- Enter yearly property tax and insurance, plus allowances for maintenance, management and capital reserves as percents of collected rent. Under More options add HOA dues and other owner-paid costs.
- Read monthly cash flow, cash-on-cash return, cap rate and debt coverage, and the income and expense table. Copy, print or download it.
Formula
Effective gross income = (rent + other income) x 12 x (1 - vacancy %)
Operating expenses = tax + insurance + (maintenance % + management % + reserve %) x effective gross income + HOA x 12 + other costs x 12
NOI = effective gross income - operating expenses
Cash flow = NOI - yearly mortgage payments (principal and interest)
Cash-on-cash return = yearly cash flow / (down payment + up-front costs)
Cap rate = NOI / price. Debt service coverage = NOI / yearly mortgage payments
The mortgage payment is the standard fixed-rate amortization payment on the loan, rounded to the cent. Everything is for the first year, and rent and costs are held constant.
Worked examples
The defaults: a $300,000 property with 20 percent down ($60,000) leaves a $240,000 loan at 6.5 percent for 30 years, a payment of $1,516.96. Rent of $2,800 with 5 percent vacancy gives effective gross income of $31,920. Costs are $3,600 tax, $1,200 insurance and 18 percent of income for maintenance, management and reserves ($5,745.60), a total of $10,545.60. NOI is $21,374.40. After $18,203.52 of mortgage payments, cash flow is $3,170.88 a year, or $264.24 a month.
Returns: cash invested is $60,000 plus $9,000 of up-front costs, or $69,000, so cash-on-cash return is 3,170.88 / 69,000 = 4.6 percent. The cap rate is 21,374.40 / 300,000 = 7.12 percent, and debt coverage is 1.17. About $2,682.50 of the first-year payments reduce the loan balance, which the cash flow figure does not count as income.
All cash: with 100 percent down, $100 of other income, $50 of HOA dues and $75 of other costs, cash flow is $1,734.10 a month, cash-on-cash return is 6.73 percent and the cap rate is 6.94 percent.
Low rent: at $1,500 of rent the same property loses $748.46 a month, cash-on-cash return is -13.02 percent and debt coverage is 0.51, meaning income covers only about half of the mortgage payments.
Cash flow, cash-on-cash and cap rate
Cash flow is what is left each year after operating costs and the mortgage. Cash-on-cash return divides that by the cash you put in, so it shows the yield on your own money and rises or falls with how much you borrow. The cap rate divides NOI by the price, ignores the loan and is the better measure for comparing properties.
Debt service coverage ratio compares NOI with the mortgage payments. A value under 1.0 means income does not cover the loan. Lenders on investment properties often look at it, and the minimum they want varies.
Allowances for the costs you cannot see yet
Maintenance, management and capital reserves are percents of collected rent because those costs rise with the size of the property and the rent. They are allowances, not forecasts. Property tax and insurance are yearly dollar amounts you can often find from the seller, a county record or a quote. For help turning a local rate into a bill, use the property tax calculator.
Vacancy is a planning reserve for months with no rent and for tenants who do not pay. A property that is fully rented for years is lucky, not typical, so a vacancy percent keeps the estimate honest.
What this estimate leaves out
The result is before income taxes, depreciation and appreciation, and it holds rent and costs steady. A real investment changes over the years, and the cost of selling matters at the end. Use this as a quick screen for deals you want to look at more closely. For the property-only yield, see the cap rate calculator, and for the loan itself, the mortgage calculator.
Assumptions and limits
- A fixed-rate loan with level monthly payments. Interest-only and adjustable loans are not modeled.
- Maintenance, management and capital reserves are percents of collected rent (after vacancy). Property tax, insurance, HOA dues and other costs are the amounts you enter.
- Everything is for the first year. Rent, vacancy and costs do not grow or change.
- Cash invested is the down payment plus the closing and up-front repair costs you enter.
- Income taxes, depreciation, appreciation, selling costs, financing fees and landlord rules are not modeled. This is an estimate, not investment advice.
Frequently asked questions
How do I calculate cash flow on a rental property?
Subtract operating expenses and vacancy from rent to get net operating income, then subtract the yearly mortgage payments. What remains is cash flow before income taxes, shown here per month and per year.
What is cash-on-cash return?
It is yearly cash flow divided by the cash you invested, which is the down payment plus closing costs and repairs. It measures the yield on your own money and depends on how much you borrow.
What does a debt service coverage ratio of 1.17 mean?
It means net operating income is 1.17 times the yearly mortgage payments, leaving about 17 percent as a cushion. A value below 1 means the property does not earn enough to pay the loan.
Why are maintenance and management percents of rent?
Those costs tend to grow with the rent and size of the property, so a percent gives a quick allowance. Replace it with real quotes or past records when you have them.
Is the one percent rule built in?
The tool shows monthly rent as a share of price, which is the number that rule refers to. It is only a screening shortcut and ignores taxes, insurance and the loan, so rely on the cash flow result for decisions.