How to analyze a rental property
Before you make an offer, run the numbers. Analyzing a rental comes down to five steps: estimate income, estimate expenses, find the NOI, compute the returns, and stress-test. Here's the process — the calculator does the arithmetic for you.
Analyze a deal now →
Step 1 — Estimate income. Start with realistic market rent (check comparable listings, not the seller's pro-forma), then subtract a vacancy allowance (often ~5%). Add any other income (parking, laundry). This is your effective gross income.
Step 2 — Estimate operating expenses. Property tax, insurance, maintenance/repairs (budget ~5–10% of rent), property management (~8–10% if you don't self-manage), HOA, and utilities you cover. A useful sanity check is the
50% rule: operating expenses often run ~half of rent. Don't include the mortgage here.
Step 3 — Find the NOI. Net operating income = effective gross income − operating expenses. NOI is the property's earning power independent of financing, and everything else is built on it.
Step 4 — Compute the returns. Cap rate = NOI ÷ price (compares deals regardless of financing).
Cash-on-cash = annual cash flow (NOI − mortgage) ÷ cash invested (down payment + closing + rehab). Monthly cash flow is what actually lands in your pocket.
Step 5 — Stress-test. Re-run with a higher vacancy, a repair, or a 1% higher interest rate. A deal that only works under perfect assumptions isn't a deal. Look at the
long-term too — appreciation and loan paydown build equity even when monthly cash flow is thin.
Quick screens before you analyze
- The 1% rule — does monthly rent ≥ 1% of price? A fast filter for what's worth a full analysis.
- Is the cap rate in line with your market (often ~5–8%)?
- Is cash-on-cash above your target (many investors want ~8%+)?
Plug a property's price, rent, and expenses into the free
rental property calculator — it computes NOI, cap rate, cash-on-cash, and cash flow instantly, and downloads a full PDF deal report to bring to a lender or partner.