Investment Calculator

Investing questions, answered

What is a good cap rate for a rental property?

Cap rate is net operating income divided by purchase price, and what counts as "good" is entirely local. Expensive, low-risk metros often trade at 4–5%, while higher-yield or higher-risk markets can run 7–10% or more. Cap rate deliberately ignores financing, so it is the right tool for comparing two properties against each other — not for judging whether a deal works with your loan.

What is the difference between cap rate and cash-on-cash return?

Cap rate measures the property: net operating income divided by the price, with no mortgage in the picture. Cash-on-cash measures your position: annual cash flow after the mortgage payment, divided by the cash you actually put in. Two investors buying the identical property at the identical price share a cap rate but can have very different cash-on-cash returns depending on how much they borrowed and at what rate.

How is net operating income (NOI) calculated?

Start with gross annual rent, subtract a vacancy allowance to get effective gross income, then subtract operating expenses — property taxes, insurance, maintenance, capital reserves, management, utilities the landlord pays, and HOA dues. What remains is NOI. Mortgage payments are deliberately excluded: NOI describes the property, not your financing.

What is DSCR and why do lenders care about it?

Debt service coverage ratio is NOI divided by annual mortgage payments. At 1.0 the property exactly covers its own debt; below that it needs cash from you each year. Most lenders on investment property want to see roughly 1.20–1.25 or better, because that margin is what absorbs a vacancy or an unplanned repair without the loan going unpaid.

What operating expense ratio should I assume?

For a self-managed single property, non-tax operating expenses commonly run about 20% of effective gross income once you include insurance, maintenance, capital reserves, and any landlord-paid utilities. Add roughly 8–10 percentage points if you hire third-party management. Owner-reported figures on listings tend to understate this, so treat a low number with suspicion and budget reserves separately from routine repairs.

How reliable is the multi-year projection?

Treat it as a sensitivity exercise, not a forecast. The projection compounds the appreciation, rent growth, and expense growth rates you choose, and small changes to those rates compound into very different ten-year outcomes. The parts that are close to certain are the loan paydown and the fixed mortgage payment; everything driven by a growth assumption is only as good as that assumption. Run a pessimistic case as well as an optimistic one.