Rental Property Calculator: Cash Flow, Cap Rate and Cash-on-Cash
This rental property calculator shows what an investment property earns after the mortgage: a $320,000 rental bought with 25% down at 7% and let for $2,600 a month clears about $102 a month, or about $1,228 a year on $88,000 of cash in.
Example numbers
The figures behind it
- Monthly cash flow
- $102.34
- Rent collected minus operating costs and the mortgage payment.
- Cap rate
- 6.37%
- Yearly net operating income of $20,388.84 divided by the $320,000 price. Ignores the loan.
- Cash-on-cash return
- 1.40%
- Yearly cash flow of $1,228.08 divided by $88,000 of cash in: down payment plus closing costs.
- Net operating income
- $1,699.07
- Per month, before the mortgage: $20,388.84 a year.
- Break-even rent
- $2,475.80
- A monthly rent at which cash flow reaches $0 with these costs. Rounding to the cent means a rent a little lower can too.
- Cash invested
- $88,000
- $80,000 down plus $8,000 closing costs and repairs.
Payment scheduleShowHide
The table scrolls sideways
| Line item | Monthly | Yearly |
|---|---|---|
| Rent | $2,600.00 | $31,200.00 |
| Vacancy | -$130.00 | -$1,560.00 |
| Property management | -$197.60 | -$2,371.20 |
| Maintenance and repairs | -$130.00 | -$1,560.00 |
| Property tax | -$293.33 | -$3,519.96 |
| Landlord insurance | -$150.00 | -$1,800.00 |
| HOA and other | $0.00 | $0.00 |
| Net operating income | $1,699.07 | $20,388.84 |
| Mortgage principal and interest | -$1,596.73 | -$19,160.76 |
| Cash flow | $102.34 | $1,228.08 |
What this result assumes
- Every figure is for the first year. Yearly amounts are twelve times the monthly ones.
- Rent growth, cost increases, appreciation and the equity you build by paying down the loan are not included.
- Income tax and depreciation are not modelled.
It also gives the cap rate, the cash-on-cash return and the rent you need to break even, which here is about $2,476 a month.
Methodology
Reviewed by Acun Özdilek
From rent to net operating income
Start with the monthly rent and take off vacancy, the share of the year the unit sits empty. What is left is the rent you collect. Property management is charged on that collected rent, because that is what managers bill on. Maintenance and repairs are set aside on the full scheduled rent, because repairs happen whether or not the unit is let.
Property tax is the yearly rate times the price, divided by twelve. Landlord insurance is the yearly premium divided by twelve. HOA dues and other costs go in as monthly amounts. Rent collected minus all of these is net operating income (NOI): income before the mortgage and before income tax. The OCC defines NOI the same way, except that it also subtracts a replacement reserve (see the assumptions).
Cap rate and cash-on-cash return
The cap rate is a year of net operating income divided by the price. It ignores how you pay for the property, so it compares buildings on their own terms. Here it is 6.37%.
Cash-on-cash return is an investor measure: a year of cash flow after the mortgage, divided by the cash you put in (down payment plus closing costs and repairs). It includes the loan. Here it is 1.40%. For a home you will live in, the mortgage calculator adds PMI and HOA to the same payment.
Break-even rent
Property tax, insurance, other costs and the mortgage do not change with rent. Each dollar of rent adds (1 − vacancy) × (1 − management) − maintenance to cash flow. So the break-even rent is (tax + insurance + other + mortgage) ÷ [(1 − vacancy)(1 − management) − maintenance]. With the defaults that is ($293.33 + $150.00 + $0.00 + $1,596.73) divided by that share, which comes to about $2,476 a month. The calculator then steps up a cent at a time to the first rent where cash flow is not negative, which is $2,475.80.
The calculator then walks a cent at a time to a rent where cash flow reaches $0. Each line is rounded to the cent, so a rent a little lower can also reach $0.
Assumptions
- First year only. Rent and costs stay fixed for the year.
- No appreciation, principal paydown, rent growth, leasing fees or capital reserves beyond the maintenance line.
- This page does not model income tax. Outside an IRA or other retirement account, rental income is reported and expenses and depreciation of the building (not the land) are deducted under IRS Publication 527.
- The vacancy, management and maintenance defaults are assumptions, not market data. Local figures will fit a specific property better.
- A lender's underwriting NOI also subtracts a reserve for replacing big items such as a roof or HVAC; this page does not, so its NOI and cap rate can come out higher than a lender's.
- Buying a home to live in rather than to let? Rent vs buy compares owning with renting over time.
Sources
Common questions
What is a good cap rate for a rental property?
No single cap rate is good. Compare it with the yearly mortgage payment as a share of the loan, principal included: when the payment share is higher, borrowing lowers your cash return. In this example the cap rate is 6.37% against a 7% loan, and the loan pulls cash-on-cash down to 1.40%, while all cash the same property returns 6.22%.
What is the difference between cap rate and cash-on-cash return?
The cap rate divides a year of net operating income by the price and ignores the loan. Cash-on-cash divides a year of cash flow after the mortgage by the cash you put in, so it shows what the loan does to your return. On the default rental they are 6.37% and 1.40%.
How much should I budget for vacancy, repairs and management?
The defaults here (5% vacancy, 8% management, 5% maintenance) are starting assumptions, not market data. Local rents and vacancy, the age of the building and quotes from managers near you are better guides.
What rent does a rental property need to break even?
Add up the costs that don't move with rent (tax, insurance, other costs and the mortgage), then divide by the share of each rent dollar left after vacancy, management and maintenance. On the default rental that gives $2,475.80 a month.
Does cash flow count the loan principal I pay down?
No. The whole principal and interest payment counts as money going out. The equity it builds is real, but it is not cash in hand, so this page leaves it out.
Can rental income help me qualify for the mortgage?
Some lenders count part of the expected rent, under their own rules. This page does not model qualification. The debt-to-income ratio calculator shows the ratio lenders check.
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