How this rental property calculator works
A rental makes money in four ways: the cash flow left after every bill, the loan paydown your tenant funds, appreciation of the property, and tax benefits such as depreciation. This calculator measures the first three. It starts with the first year, then projects every year you plan to hold and the cash you would receive if you sold.
Effective rent = (rent + other income) × 12 × (1 − vacancy)
Net operating income (NOI) = effective rent − operating expenses
Cash flow = NOI − mortgage payments (principal + interest)
Operating expenses are property tax, insurance, HOA dues, utilities you pay, and three percentage reserves taken from collected rent: maintenance, capital expenditures (roof, water heater, HVAC, appliances) and property management. The mortgage is not an operating expense: it depends on how you finance the property, not on how the property performs, which is why NOI is used to compare properties.
The ratios investors look at
- Cap rate = NOI ÷ purchase price. The return the property would earn if bought with cash. See the cap rate calculator.
- Cash-on-cash return = yearly cash flow ÷ the cash you put in (down payment, closing costs and repairs). See the cash-on-cash calculator.
- DSCR (debt service coverage ratio) = NOI ÷ yearly mortgage payments. Below 1.0 the property does not earn enough to pay its loan; lenders that underwrite investment loans on the property's income usually want comfortably more than 1.0.
- 1% rule: monthly rent of at least 1% of the price was an old screening shortcut. It is a quick filter, not an analysis; in many U.S. markets almost nothing passes it today.
- Gross rent multiplier = price ÷ yearly rent. Lower means more rent per dollar of price.
Worked example
A $300,000 single-family home with 25% down ($75,000), $9,000 of closing costs and a 30-year loan of $225,000 at 7%. Rent is $2,500 a month with 5% vacancy; property tax $3,600 and insurance $1,500 a year; maintenance 8%, capital expenditures 5% and management 8% of collected rent.
- Effective rent: $30,000 × 0.95 = $28,500.
- Operating expenses: $3,600 + $1,500 + 21% × $28,500 ($5,985) = $11,085.
- NOI: $28,500 − $11,085 = $17,415; cap rate 17,415 ÷ 300,000 = 5.81%.
- Mortgage: $1,496.93 a month, $17,963 a year. Cash flow: 17,415 − 17,963 = −$548 a year, about −$46 a month. DSCR 0.97.
The first year loses a little money, which is common for financed rentals when mortgage rates are near 7%. With rent and expenses both rising 3% a year, cash flow turns positive in year 3 and reaches about $1,638 in year 5. If the home grows 3% a year it is worth about $347,782 after five years; after 6% selling costs and paying off the remaining loan balance of $211,796 you would receive about $115,119. Adding $2,643 of total cash flow and subtracting the $84,000 you put in leaves a profit of about $33,762 before income tax, an IRR of about 7% a year.
Two changes show what matters most. At $2,800 rent the same home cash-flows about $179 a month from the start (cash-on-cash 2.56%, cap rate 6.71%). Bought with cash, it earns about $1,451 a month, a 5.64% cash-on-cash return on $309,000 invested.
Estimating expenses honestly
Most rental analyses go wrong on expenses, not on rent. Get the actual property tax bill from the county, an insurance quote for a landlord (dwelling fire) policy, and HOA dues from the association. For the percentage reserves, newer homes need less maintenance than older ones, and a roof or HVAC replacement can wipe out several years of cash flow, which is why a separate capital expenditure reserve is useful. Even if you plan to self-manage, including a management percentage shows whether the deal still works if you later hire a manager.
Vacancy covers the weeks between tenants and unpaid rent. Check how long similar rentals stay listed in the area rather than assuming zero.
Taxes are not included
The results are before income tax. In the U.S., rental income is reported on Schedule E, and you can deduct mortgage interest, property tax, insurance, repairs and management fees. You can also depreciate the building (not the land) over 27.5 years for residential rental property, which often makes a small positive cash flow show a tax loss. When you sell, depreciation you claimed is generally taxed again (recapture) and the rest of the gain is a capital gain. Rules on passive losses and recapture are detailed; a tax professional can apply them to your situation.
Limits of the projection
The projection assumes steady growth rates, no major surprise repairs, no refinance, and that the sale happens at the end of the last year. Real markets move in cycles, and rents can stall while taxes and insurance keep rising. Try a few pessimistic scenarios (lower rent growth, higher vacancy, flat prices) before buying.
Frequently asked questions
What is a good cash flow for a rental property?
There is no single number, but the cash flow should stay positive after realistic reserves for vacancy, maintenance, capital expenditures and management. Many investors aim for at least $100–200 a month per door after all of those.
Is the mortgage part of NOI?
No. Net operating income is rent minus operating expenses only. The mortgage is subtracted afterwards to get cash flow, so NOI and cap rate can be compared across properties regardless of financing.
What is a good cap rate?
It depends on the market and property type. Lower cap rates usually mean more expensive, lower-risk areas; higher cap rates often come with older buildings or weaker locations. Compare with similar properties nearby.
How much should I budget for repairs?
A common approach is a maintenance reserve of about 5–10% of rent plus a separate capital expenditure reserve of about 5–10%, adjusted for the age and condition of the property.
Does the calculator include depreciation and taxes?
No. All results are before income tax. Depreciation over 27.5 years and deductible expenses usually reduce the tax on rental income, while depreciation recapture and capital gains tax apply when you sell.
Sources
- Internal Revenue Service. Publication 527, Residential Rental Property.
- Internal Revenue Service. Publication 946, How To Depreciate Property (27.5-year recovery period for residential rental property).
- Internal Revenue Service. Topic no. 414, Rental income and expenses.
Last reviewed 3 November 2026. Results are estimates; see our disclaimer.