Rental Property Investing

Rental investing means buying property, leasing it, and often selling later. Income comes from rent and, if you sell, from appreciation. It is capital‑intensive and illiquid, but can offer tax benefits and inflation hedging. This calculator helps you compare key metrics: cap rate, cash flow, and IRR.

Cap Rate and NOI

NOI (net operating income) is effective rental income minus operating expenses—property tax, insurance, HOA, maintenance, and the like. It does not include the mortgage. Cap rate is NOI divided by the purchase price. It is a quick way to compare properties; higher cap rates mean higher yield, but often more risk or more work.

Cash Flow and Cash-on-Cash

Cash flow is NOI minus debt service (annual principal and interest). It is what ends up in your pocket each year. Cash-on-cash (CFROI) is that annual cash flow divided by the cash you put in (down payment, closing, repairs). It matters most when you use a loan.

IRR and the 1% and 50% Rules

IRR (internal rate of return) is the annual return that makes the project’s cash flows (including the sale) equal to what you invested. It accounts for timing and is a standard way to rank investments. The 1% rule says monthly rent should be at least 1% of the purchase price (plus major repairs)—a rough screen. The 50% rule says operating expenses are often about half of gross income; the rest goes to the mortgage and profit. Both are guidelines, not guarantees.

Frequently Asked Questions

What is the cap rate on a rental property?

Cap rate is NOI divided by the property price. NOI is income minus operating expenses, excluding the mortgage. Higher cap rates generally mean higher yield, but can reflect more risk or lower growth.

What is cash-on-cash return (CFROI)?

Cash-on-cash is annual cash flow (after the mortgage) divided by the cash you invested: down payment, closing costs, and repairs. It measures return on the money you actually put in.

What is the 1% rule in rental investing?

Monthly rent should be at least 1% of the purchase price (plus major repairs). A $200,000 property would need about $2,000 in rent. Many markets do not meet this; it is a screening tool, not a requirement.

What is the 50% rule in rental investing?

Operating expenses (excluding the mortgage) are often around 50% of gross income. The other 50% is available for the mortgage and profit. Actual ratios vary by property and market.