Rental Property Calculator
Analyze a rental property's investment potential — calculate NOI, cap rate, cash-on-cash return, and monthly cash flow before you buy.
Rental Property Return Benchmarks
| Metric | Poor | Average | Good |
|---|---|---|---|
| Cap Rate | < 4% | 4–6% | > 7% |
| Cash-on-Cash Return | < 4% | 4–8% | > 8% |
| Gross Rent Multiplier | > 20× | 12–18× | < 10× |
| Vacancy Rate | > 10% | 5–8% | < 5% |
| 1% Rule (rent/price) | < 0.6% | 0.7–1% | > 1% |
Benchmarks vary significantly by market, property type, and investment strategy. High-appreciation markets often have lower yields.
Frequently Asked Questions
What is a good cap rate for rental property?
Cap rate (capitalization rate) = Net Operating Income / Property Value. It measures the unlevered return on a real estate investment. General benchmarks: 3–5%: Strong urban markets (NYC, SF, LA) — low risk, lower return. 5–7%: Mid-tier markets and suburban areas — balanced risk/return. 7–10%: Secondary/tertiary markets and higher-risk properties. 10%+: Value-add properties, distressed assets, or high-crime areas. A 'good' cap rate depends on your market. In expensive coastal markets, a 4% cap rate may be excellent. In the Midwest, you might expect 7–8%.
What is cash-on-cash return?
Cash-on-cash return = Annual Pre-Tax Cash Flow / Total Cash Invested. Unlike cap rate, it accounts for leverage (mortgage financing). Example: $400,000 property, $80,000 down payment (20%), $24,000 annual NOI, $18,000 annual mortgage payments → $6,000 annual cash flow → 7.5% cash-on-cash return. A good cash-on-cash return depends on your financing and market, but 8–12% is generally considered a strong return for residential rental properties. Many investors accept lower returns in appreciating markets where they expect capital gains to make up the difference.
What is the 1% rule for rental properties?
The 1% rule is a quick screening tool: monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. A $400,000 property needs $4,000/month. In high-cost markets, the 1% rule is nearly impossible to achieve — properties typically rent at 0.4–0.6% of value. In affordable markets, 1–1.5% is common. The rule is a rough filter, not a complete analysis — always run full cash flow numbers including vacancy, maintenance, property management, taxes, and insurance.
What operating expenses should I budget for?
Typical annual operating expenses as a percentage of gross rental income: Property management: 8–12% (if not self-managing). Property taxes: 1–2% of value/year. Insurance: 0.5–1% of value/year. Maintenance and repairs: 1–2% of value/year (50% rule suggests expenses = 50% of gross rent). Vacancy allowance: 5–10% of gross rent. Capital expenditures (roof, HVAC, appliances): 5–10% of gross rent. HOA fees (if applicable): variable. Accounting/legal: $500–$2,000/year. Total operating expenses typically run 35–50% of gross rent for a well-managed property.
How does mortgage leverage affect rental property returns?
Leverage amplifies both gains and losses. Without leverage: $400,000 cash purchase, $24,000 NOI → 6% return. With leverage: $80,000 down payment, $18,000 annual mortgage payments, $6,000 cash flow → 7.5% cash-on-cash return — better! But if NOI drops to $18,000 (higher vacancy), leveraged cash flow = $0 while unleveraged still returns 4.5%. During recessions or market downturns, leveraged properties can go cash-flow negative. Rule of thumb: positive leverage (NOI yield > mortgage rate) amplifies returns; negative leverage destroys them.