Estimate whether a rental property is worth buying. Enter the purchase, loan, rent, operating expenses, and how long you plan to hold. The calculator returns year-1 cash flow and cap rate, then projects cash-on-cash return and IRR through the sale at the end of the hold.
Quick screens vs a full projection
| Rule | What it checks |
|---|---|
| 1% (or 2%) rule | Monthly rent vs purchase price after repairs |
| 50% rule | Operating expenses as a share of rent (excludes the mortgage) |
| 70% rule | For flips: offer ≤ 70% of ARV minus rehab |
| Cap rate | Year-1 NOI / price — financing-neutral comparison |
| Cash-on-cash | Cash flow / cash invested — includes the loan |
| IRR | Annualized return on every dollar for the years it is invested |
Examples
$200,000 purchase, 20% down, $2,000 rent, 20-year hold
A $200,000 house with 20% down, 6% interest on a 30-year loan, $6,000 closing, $2,000 monthly rent, 5% vacancy, and $6,700 of first-year operating expenses produces $16,100 of NOI (an 8.05% cap rate) and $4,588.63 of year-1 cash flow. After 3% annual rent, expense, and value growth and an 8% cost to sell, a 20-year hold shows about $402,304 of total profit and an IRR of 18.42% per year.
Same deal, cash, no loan
Paying cash ties up $206,000 (price plus closing). Year-1 cash flow equals NOI at $16,100, the cap rate is still 8.05%, and the 20-year IRR falls to 10.56% because there is no leverage. Cash-on-cash over the hold is 271.33%.
Formula
Year 1. Gross income is monthly rent plus other income, times 12. Vacancy and management are percentages of that gross (management is charged on collected rent, after vacancy). Operating expenses are the annual tax, insurance, HOA, maintenance, and other costs. Net operating income and cash flow are:
NOI = gross × (1 − vacancy%) × (1 − management%) − operating expenses
Cash flow = NOI − annual mortgage payments
Cap rate = NOI / purchase price
Cash invested = down payment + closing + repairs
The mortgage is a standard amortizing payment on purchase − down at rate/12.
Later years. Rent, other income, and each expense line grow at their own
annual increase from year 2 onward. The loan payment stays level until the
balance is cleared. Property value is start × (1 + appreciation)^year, or an
implied rate that reaches a known sell price in the holding length. Start is
the purchase price, or after-repair value when you rehab.
Sale in year n. Net proceeds are value × (1 − cost to sell) − remaining loan. IRR is the annual rate r such that:
−cash invested + CF1/(1+r) + CF2/(1+r)^2 + … + (CFn + net sale)/(1+r)^n = 0
Total profit is all operating cash flow plus net sale proceeds, minus cash invested. The headline cash-on-cash figure is that profit divided by cash invested.
Rules of thumb such as rent-to-price ratios are rough screens. Use the entered income, vacancy, operating expenses, debt service, and sale assumptions for the displayed cash flow, cap rate, and IRR.
For U.S. tax reporting concepts, see IRS Publication 527, Residential Rental Property. This calculator is a before-tax investment projection: it does not calculate depreciation, passive-loss limits, income tax, capital-gain tax, depreciation recapture, or local legal requirements.
These numbers assume steady rent, vacancy, expenses, and appreciation for decades. Inflation is not applied separately. A vacancy spike, a large repair, or a weaker sale can change IRR and cash-on-cash a lot — rerun the projection with more conservative inputs before you buy.