How to use the Rental Property Calculator
- Enter the purchase price, down payment percentage and mortgage rate you have been quoted.
- Enter achievable market rent — verify it against comparable listings, not the seller's pro forma.
- Set operating expenses as a percentage of rent; 40% to 50% is realistic for most single-family rentals.
- Set vacancy to your local turnover reality, then read cash flow and returns together.
How the calculation works
Net operating income is calculated before debt service, which is what makes cap rate comparable across deals with different financing. Cash flow then subtracts the mortgage payment, and cash-on-cash divides annual cash flow by the actual cash invested — down payment plus roughly 3% for closing.
The 50% rule exists because new investors systematically underestimate operating expenses. Taxes, insurance, management, maintenance, capital reserves, turnover and utilities typically consume 40–50% of gross rent over a full hold period even though many months look far cheaper.
Vacancy is applied to gross rent before expenses, since an empty unit collects nothing while still costing carrying expenses. A 6% assumption is roughly three weeks of empty time a year, which is normal for annual leases in a stable market.
NOI = rent × 12 × (1 − vacancy) × (1 − expense ratio); Cap rate = NOI ÷ price; CoC = annual cash flow ÷ cash investedSource: Appraisal Institute, The Appraisal of Real Estate, income capitalisation approach; IRS Publication 527 for rental expense categories.
Worked example
$300,000 property, 25% down at 7%, $2,400 rent, 40% expenses, 6% vacancy.
- Gross rent after vacancy is $27,072 a year.
- NOI after 40% expenses is about $16,243, giving a 5.4% cap rate.
- The $225,000 loan costs about $1,497 a month.
Cash flow of roughly −$143 a month; the deal needs a lower price, higher rent or more equity to work.
Frequently asked questions
What cap rate should I target?+
It is market-dependent. Compare against recent sales of similar properties in the same submarket rather than a national benchmark.
Should the mortgage be in NOI?+
No. NOI is deliberately unlevered so properties can be compared independently of how each buyer finances them.
Does this include appreciation and tax benefits?+
No. It measures operating performance only. Depreciation and appreciation are real but should be evaluated separately.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.