Rental Property Calculator

Because they are the expenses that have not happened yet. Taxes and insurance arrive as bills and nobody forgets them; a roof, a furnace and a water heater arrive once a decade and cost more than a year of cash flow between them. Leaving those lines at zero does not make a property cash flow, it moves the expense from the spreadsheet to a year you were not expecting it. The defaults here are deliberately real rather than flattering, and lowering them is a claim about the building's age and condition that you should be able to defend.

It says monthly rent should be at least 1% of the purchase price — a house at two hundred thousand should rent for two thousand. It is a screen, not an analysis: it ignores taxes, which vary by a factor of five between states, and it ignores the interest rate entirely, so the same ratio that cash flowed comfortably at 4% money does not at 7%. Use it to decide which properties are worth a full underwrite, then use the cash flow and coverage figures on this page to decide whether to buy.

Because the loan costs more than the property earns. A cap rate is unlevered — NOI over price, with no financing in it. Cash-on-cash is what is left after debt service, divided by the cash you actually put in. When the mortgage constant, the annual payment as a percentage of the loan, is higher than the cap rate, borrowing reduces your return rather than magnifying it. That is negative leverage, it is the normal condition when rates are high, and the only things that fix it are a lower price, a higher rent or cheaper money.

Count paydown, treat appreciation carefully. Principal paydown is real — the tenant is retiring your loan and the money shows up as equity whether or not you ever sell. Appreciation is a forecast, and this page grows it at whatever rate you enter, which means it is exactly as reliable as your guess. The useful discipline is to check that the deal works on cash flow alone, then treat the total return figure as the upside rather than the reason to buy.

Most rental lenders underwriting on the property rather than your income want 1.20 or better, and some will go to 1.00 at a lower LTV and a higher rate. The ratio is NOI over annual debt service, so it is measuring exactly the question that matters to them: whether the building pays its own mortgage with room to spare. Note that lenders usually compute it on their own expense assumptions rather than yours, and they rarely include a capital reserve — so the ratio they quote you will normally look better than the one on this page.

Because the mortgage does not grow and everything else does. On a fixed-rate loan the payment is frozen for thirty years while rent drifts up with the market, so a property that clears a hundred dollars a month in year one can clear four or five times that by year ten without anything remarkable happening. That is the actual argument for buy-and-hold. It also cuts the other way: if you enter an expense growth rate higher than your rent growth rate — which is what a period of rising insurance and taxes looks like — the projection will show cash flow shrinking, and that is worth seeing before you buy.