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Rental deal math
Rental property calculator: the math behind every deal
A rental property calculator turns a price, a rent and a loan into four numbers: net operating income, cap rate, annual cash flow and cash-on-cash return.
The formula
Cash flow = net operating income - annual loan paymentsWorked example
- Purchase price $300,000, 20% down, 30-year loan at 6.5%: loan $240,000, payment (principal and interest) $1,517 a month, or $18,204 a year.
- Gross rent $2,400 x 12 = $28,800. Less vacancy $1,440, taxes $3,600, insurance $1,500, maintenance $2,880, management $2,304.
- Net operating income = $17,076. Cash flow = $17,076 - $18,204 = -$1,128 a year (-$94 a month).
- Cap rate = $17,076 / $300,000 = 5.69%. Cash invested = down payment + 3% closing = $69,000, so cash-on-cash = -$1,128 / $69,000 = -1.63%.
Illustrative inputs for learning, not market data or a forecast. Replace every number with figures from your own deal.
How to use it
The example loses money at these inputs, and that is the point of running the numbers before an offer. Change the rent, the rate or the down payment and watch which of the four results moves. Vacancy, maintenance and management belong in the estimate even if you plan to self-manage, because your time has a cost.
Frequently asked questions
What goes into a rental property calculator?
Price, rent, down payment, interest rate, loan term, property taxes, insurance, and allowances for vacancy, repairs and management. Closing costs matter for return on cash invested.
Is cash flow before or after the mortgage?
After. Net operating income is before loan payments; cash flow subtracts principal and interest.
Should I include a repair allowance if the property is new?
Yes. A lower percentage is reasonable for newer systems, but zero is rarely realistic over a multi-year hold.