Analyze a rental property the way real estate investors do: net operating income, cap rate, and cash on cash return, all from a purchase price and a few rental numbers.
Cap rate and cash on cash return are two of the most common metrics real estate investors use to evaluate a rental property. Cap rate looks at the property's return as if you paid all cash, ignoring financing entirely, which makes it useful for comparing properties on a level playing field. Cash on cash return looks at the actual cash you put in and the actual cash flow you get back after your mortgage payment, which reflects your real return given how you financed the deal. Every slider on this page has a matching number field: drag to explore, or type exact figures if you already know your numbers.
| Metric | Formula |
|---|---|
| Net Operating Income (NOI) | Effective gross rental income minus operating expenses, before any mortgage payment |
| Cap Rate | NOI divided by purchase price |
| Annual Cash Flow | NOI minus annual mortgage payment (principal and interest) |
| Total Cash Invested | Down payment plus closing costs |
| Cash on Cash Return | Annual cash flow divided by total cash invested |
Net operating income is deliberately calculated before any mortgage payment, because financing is a choice specific to the buyer, not a property characteristic. Two investors could buy the identical property, one with cash and one with a large loan, and the property's NOI and cap rate would be the same for both. This is exactly why cap rate is useful for comparing different properties, while cash on cash return is useful for evaluating your own specific deal given your own financing.
There is no universal answer, since acceptable cap rates vary significantly by market, property type, and risk. Properties in highly desirable, low risk markets often trade at lower cap rates because investors accept a lower return for greater stability and appreciation potential, while properties in higher risk or lower growth markets typically need higher cap rates to attract buyers. Comparing a property's cap rate against similar recent sales in the same market is generally more useful than comparing it to a single universal benchmark.
Net operating income, cap rate, and cash on cash return are core investment analysis concepts on real estate licensing exams. Our General Real Estate practice exam covers this content directly, with state specific versions for California, New York, New Jersey, and Pennsylvania. Real estate as an alternative investment asset class also appears on the CAIA Level 1 exam.
Vacancy is a long term average, not a snapshot. Even a fully occupied property today will experience turnover, unpaid rent, or gaps between tenants over time, and building a realistic vacancy assumption into your analysis avoids overstating the property's true income.
Many experienced investors add a capital expenditure reserve, often five to ten percent of rent, in addition to routine maintenance, specifically to fund large periodic replacements. This calculator's maintenance field can be increased to build in that cushion.
No. Cash on cash return only measures the cash flow return on your invested cash and ignores any change in property value. Total return, which some investors also track, would add appreciation and loan paydown on top of this cash flow figure.
Yes. Each slider has a paired number input. Type directly into any gold field to enter a precise figure, and the slider along with all results update immediately.
Property analysis math like this shows up directly on real estate licensing exams. Practice for free.
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