Rental Property Cash Flow & Cap Rate Calculator
Analyze your real estate investment deal instantly. Calculate Net Operating Income (NOI), Cash Flow, Cap Rate, and Cash on Cash Return.
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Understanding Real Estate Investment Metrics
Investing in rental properties is a proven strategy for building wealth, but success relies heavily on the numbers. Using a comprehensive calculator helps investors distinguish between a speculative gamble and a sound investment. This tool breaks down the critical metrics every landlord needs to know.
What is Cap Rate?
The Capitalization Rate (Cap Rate) is one of the most popular metrics in real estate. It measures the rate of return on a real estate investment property based on the income that the property is expected to generate. The formula is:
Cap Rate = Net Operating Income (NOI) / Current Market Value
Because Cap Rate excludes mortgage financing, it allows investors to compare properties "apples-to-apples" regardless of how they are purchased (cash vs. loan). A higher Cap Rate generally indicates a better return, though it may also come with higher risk.
Cash Flow vs. Net Operating Income (NOI)
While these terms are often used interchangeably by novices, they are distinct:
- NOI (Net Operating Income): This is your total revenue minus all necessary operating expenses (taxes, insurance, maintenance, management fees). It does not include mortgage payments (debt service).
- Cash Flow: This is what ends up in your pocket. It is calculated by taking the NOI and subtracting your debt service (mortgage principal and interest). Positive cash flow is essential for long-term sustainability.
Cash on Cash Return
This metric is crucial for investors using leverage (loans). It calculates the cash income earned on the cash invested in a property.
Cash on Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested
Total cash invested includes your down payment, closing costs, and any immediate rehab costs. This metric tells you how hard your actual dollars are working for you compared to other investment vehicles like the stock market.
What makes a "Good" Deal?
While benchmarks vary by market and strategy, many investors look for:
- Cash Flow: At least $100-$300 per door, per month.
- Cap Rate: 5% to 10%, depending on the asset class and location.
- Cash on Cash Return: 8% to 12% is considered healthy in many markets.
Use the calculator above to stress-test your assumptions. Try increasing the vacancy rate or maintenance costs to see if the deal still makes sense in a worst-case scenario.