Cap Rate (Capitalization Rate) measures a property's natural rate of return. It is calculated as Net Operating Income (NOI) / Property Price. It helps you compare properties regardless of how they are financed.

What is Cash on Cash Return?

Cash on Cash Return measures the return on the actual cash you invested (down payment + closing costs + rehab). It is the most important metric for investors using leverage (loans).

Does the 1% rule still work?

The 1% rule (monthly rent should be 1% of purchase price) is a quick screening tool, but in today's high-interest, high-price market, it is harder to find. Many investors now settle for 0.7% or 0.8% if the area has high appreciation potential.

Rental Property ROI: Are You Making Money?

Real estate investing isn't about pretty houses; it's about numbers. If calculation shows negative cash flow, it's not an asset—it's a liability.

Analyze Your Deal

Input rent and expenses to clarify your cash flow.

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The 4 Wealth Generators of Real Estate

Cash Flow: The profit left after all expenses (mortgage, taxes, insurance, repairs) are paid.
Appreciation: The property value goes up over time (tracking or beating inflation).
Loan Paydown: The tenant pays off your mortgage principal every month.
Tax Benefits: Depreciation and expense write-offs lower your tax bill.

Metric 1: Net Operating Income (NOI)

NOI = Total Income - Operating Expenses

Operating expenses include taxes, insurance, maintenance, property management, and utilities. Note: NOI does NOT include mortgage payments. It measures the property's performance independent of debt.

Metric 2: Cash Flow

Cash Flow = NOI - Mortgage Payment (Debt Service)

This is what actually hits your bank account. Positive cash flow is essential for survival.

Metric 3: Cash on Cash Return (CoC)

CoC = Annual Cash Flow / Total Cash Invested

If you put $25,000 down on a house and it generates $2,500/year in cash flow, your CoC return is 10%. This is the "pure" return on your money, comparable to stock market yield.

The Hidden Costs

Novice investors often forget:

Vacancy: The property won't be rented 365 days a year. Budget 5-8% for vacancy.
CapEx: Every roof, water heater, and HVAC system will eventually break. Set aside money monthly for these major expenses.