Is this rental property a good investment?
On the defaults — a $250,000.00 purchase price, 20% down, $5,000.00 of closing costs, $2,000.00 of monthly rent, 5% vacancy, $450.00 of monthly operating expenses, and a $1,200.00 monthly mortgage payment — the down payment is $50,000.00, the cash invested is $55,000.00, the effective gross income is $1,900.00 a month, $22,800.00 a year, the NOI is $17,400.00 a year ($1,450.00 a month), the cash flow is $3,000.00 a year, $250.00 a month, the cap rate is 6.96%, the cash-on-cash return is 5.45%, the gross rent multiplier is 10.42, and the rent-to-price ratio is 0.80%. The 1% rule says a rental should bring in monthly rent of at least 1% of its purchase price — a $250,000 property should rent for at least $2,500 a month — and this property’s rent-to-price ratio is 0.80%, below the 1% rule, so this property only works because the mortgage is cheap relative to the rent. The 50% rule says operating expenses typically run about half of gross rent over the long term; here they run $5,400.00 a year against $24,000.00 of gross rent, well under half.
Five things about the model are worth stating plainly. First, the effective gross income is the rent plus other income times one minus the vacancy rate — ($2,000.00 + $0.00) × (1 − 5%) = $1,900.00 a month. Second, the NOI is the annual effective gross income minus annual operating expenses — $22,800.00 − $5,400.00 = $17,400.00 a year. Third, the cash flow is the NOI minus annual mortgage payments — $17,400.00 − $14,400.00 = $3,000.00 a year, $250.00 a month. Fourth, the cap rate is the NOI divided by the purchase price — $17,400.00 ÷ $250,000.00 × 100 = 6.96% — and it ignores financing entirely. And fifth, the cash-on-cash return is the annual cash flow divided by the cash you actually put in — $3,000.00 ÷ $55,000.00 × 100 = 5.45%; all listed in Accuracy & limitations.
The worked example, line by line
Setup: $250,000.00 purchase price, 20% down, $5,000.00 closing costs, $2,000.00 monthly rent, 5% vacancy, $450.00 monthly operating expenses, $1,200.00 monthly mortgage, $0.00 other monthly income.
Line 1 — the down payment and cash invested. The down payment is 20% of $250,000.00 = $50,000.00, and the cash invested is $50,000.00 + $5,000.00 = $55,000.00.
Line 2 — the effective gross income. The effective gross income is ($2,000.00 + $0.00) × (1 − 5%) = $1,900.00 a month, $22,800.00 a year.
Line 3 — the net operating income. The NOI is $22,800.00 − $450.00 × 12 = $22,800.00 − $5,400.00 = $17,400.00 a year, $1,450.00 a month.
Line 4 — the cash flow. The cash flow is $17,400.00 − $1,200.00 × 12 = $17,400.00 − $14,400.00 = $3,000.00 a year, $250.00 a month.
Line 5 — the cap rate, cash-on-cash return, gross rent multiplier, and rent-to-price. The cap rate is $17,400.00 ÷ $250,000.00 × 100 = 6.96%; the cash-on-cash return is $3,000.00 ÷ $55,000.00 × 100 = 5.45%; the gross rent multiplier is $250,000.00 ÷ $24,000.00 = 10.42; and the rent-to-price ratio is $2,000.00 ÷ $250,000.00 × 100 = 0.80%.
Every branch, checked
Monthly rent $2,400.00: Down payment $50,000.00, cash invested $55,000.00, EGI $2,280.00/month, $27,360.00/year, NOI $21,960.00/year ($1,830.00/month), cash flow $7,560.00/year, $630.00/month, cap rate 8.78%, cash-on-cash 13.75%, GRM 8.68, rent-to-price 0.96% — With a monthly rent of $2,400.00 the effective gross income is $2,280.00 a month, $27,360.00 a year; the NOI is $21,960.00 and the cash flow is $7,560.00 a year, $630.00 a month — a cap rate of 8.78% and a 13.75% cash-on-cash return.
Purchase price $200,000.00: Down payment $40,000.00, cash invested $45,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.70%, cash-on-cash 6.67%, GRM 8.33, rent-to-price 1.00% — At a $200,000.00 purchase price the down payment is $40,000.00 and the cash invested is $45,000.00; the NOI is still $17,400.00, so the cap rate rises to 8.70% and the cash-on-cash return to 6.67% — the rent-to-price ratio hits 1.00%, the 1% rule.
Down payment 25%: Down payment $62,500.00, cash invested $67,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 4.44%, GRM 10.42, rent-to-price 0.80% — Putting 25% down means a $62,500.00 down payment and $67,500.00 of cash invested; the NOI and the cash flow are unchanged, so the cap rate stays 6.96% but the cash-on-cash return falls to 4.44% — more cash in, same cash out.
Vacancy 10%: Down payment $50,000.00, cash invested $55,000.00, EGI $1,800.00/month, $21,600.00/year, NOI $16,200.00/year ($1,350.00/month), cash flow $1,800.00/year, $150.00/month, cap rate 6.48%, cash-on-cash 3.27%, GRM 10.42, rent-to-price 0.80% — With 10% vacancy the effective gross income falls to $1,800.00 a month, $21,600.00 a year; the NOI is $16,200.00 and the cash flow is $1,800.00 a year, $150.00 a month — a cap rate of 6.48% and a 3.27% cash-on-cash return.
Monthly operating expenses $600.00: Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $15,600.00/year ($1,300.00/month), cash flow $1,200.00/year, $100.00/month, cap rate 6.24%, cash-on-cash 2.18%, GRM 10.42, rent-to-price 0.80% — At $600.00 a month of operating expenses the NOI is $15,600.00 and the cash flow is $1,200.00 a year, $100.00 a month — a cap rate of 6.24% and a 2.18% cash-on-cash return.
Monthly mortgage $1,500.00: Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow −$600.00/year, −$50.00/month, cap rate 6.96%, cash-on-cash −1.09%, GRM 10.42, rent-to-price 0.80% — At a $1,500.00 monthly mortgage the cash flow is −$600.00 a year, −$50.00 a month, and the cash-on-cash return is −1.09% — yet the cap rate is unchanged at 6.96%, because the cap rate ignores financing.
Monthly rent $1,800.00: Down payment $50,000.00, cash invested $55,000.00, EGI $1,710.00/month, $20,520.00/year, NOI $15,120.00/year ($1,260.00/month), cash flow $720.00/year, $60.00/month, cap rate 6.05%, cash-on-cash 1.31%, GRM 11.57, rent-to-price 0.72% — With a monthly rent of $1,800.00 the effective gross income is $1,710.00 a month, $20,520.00 a year; the NOI is $15,120.00 and the cash flow is $720.00 a year, $60.00 a month — a cap rate of 6.05% and a 1.31% cash-on-cash return.
The reverses, worked backwards
Smallest cent monthly rent whose monthly cash flow reaches $500.00: The smallest cent monthly rent whose monthly cash flow reaches $500.00 is $2,263.16 — the exact rent is 2263.1579. At the displayed $2,263.16 the effective gross income is $2,150.00 a month, $25,800.00 a year, the NOI is $20,400.00, and the cash flow is $6,000.00 a year, $500.00 a month. At $2,263.15 the effective gross income is $2,149.99 a month and the monthly cash flow is $499.99 — one cent of rent short.
Purchase price for a cap rate of exactly 8.00%: The purchase price for a cap rate of exactly 8.00% is $217,500.00 (exact: $17,400.00 ÷ 0.08). At $217,500.00 the down payment is $43,500.00, the cash invested is $48,500.00, the NOI is $17,400.00, the cap rate is 8.00%, the cash-on-cash return is 6.19%, and the gross rent multiplier is 9.06.
Monthly rent for a rent-to-price ratio of exactly 1.00% (the 1% rule): The monthly rent for a rent-to-price ratio of exactly 1.00% — the 1% rule — is $2,500.00 (exact: $250,000.00 × 0.01). At $2,500.00 the effective gross income is $2,375.00 a month, $28,500.00 a year, the NOI is $23,100.00, and the cash flow is $8,700.00 a year, $725.00 a month — a cap rate of 9.24% and a 15.82% cash-on-cash return.
Down payment percentage for a cash-on-cash return of exactly 8.00%: The down payment percentage for a cash-on-cash return of exactly 8.00% is 13.00% (exact: the cash invested must be $37,500.00, so the down payment is $32,500.00). At 13.00% the down payment is $32,500.00, the cash invested is $37,500.00, and the cash-on-cash return is 8.00%.
Smallest cent monthly rent whose monthly cash flow is at least $0.01 (positive cash flow): The smallest cent monthly rent whose monthly cash flow is at least $0.01 is $1,736.85 — the exact rent is 1736.8474. At the displayed $1,736.85 the effective gross income is $1,650.01 a month, $19,800.12 a year, the NOI is $14,400.12, and the cash flow is $0.12 a year, $0.01 a month. At $1,736.84 the effective gross income is $1,650.00 a month, the NOI is $14,400.00, and the monthly cash flow is $0.00 — break-even, not positive.
Purchase price for a gross rent multiplier of exactly 10.00: The purchase price for a gross rent multiplier of exactly 10.00 is $240,000.00 (exact: $24,000.00 × 10). At $240,000.00 the down payment is $48,000.00, the cash invested is $53,000.00, the NOI is $17,400.00, the cap rate is 7.25%, the cash-on-cash return is 5.66%, and the gross rent multiplier is 10.00.
What the defaults assume
The defaults are a $250,000.00 purchase price, 20% down, $5,000.00 of closing costs, $2,000.00 of monthly rent, 5% vacancy, $450.00 of monthly operating expenses, a $1,200.00 monthly mortgage, and $0.00 of other monthly income — Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 5.45%, GRM 10.42, rent-to-price 0.80%. With a monthly rent $2,400.00, Down payment $50,000.00, cash invested $55,000.00, EGI $2,280.00/month, $27,360.00/year, NOI $21,960.00/year ($1,830.00/month), cash flow $7,560.00/year, $630.00/month, cap rate 8.78%, cash-on-cash 13.75%, GRM 8.68, rent-to-price 0.96% — With a monthly rent of $2,400.00 the effective gross income is $2,280.00 a month, $27,360.00 a year; the NOI is $21,960.00 and the cash flow is $7,560.00 a year, $630.00 a month — a cap rate of 8.78% and a 13.75% cash-on-cash return. With a purchase price $200,000.00, Down payment $40,000.00, cash invested $45,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.70%, cash-on-cash 6.67%, GRM 8.33, rent-to-price 1.00% — At a $200,000.00 purchase price the down payment is $40,000.00 and the cash invested is $45,000.00; the NOI is still $17,400.00, so the cap rate rises to 8.70% and the cash-on-cash return to 6.67% — the rent-to-price ratio hits 1.00%, the 1% rule. With a down payment 25%, Down payment $62,500.00, cash invested $67,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 4.44%, GRM 10.42, rent-to-price 0.80% — Putting 25% down means a $62,500.00 down payment and $67,500.00 of cash invested; the NOI and the cash flow are unchanged, so the cap rate stays 6.96% but the cash-on-cash return falls to 4.44% — more cash in, same cash out. With a vacancy 10%, Down payment $50,000.00, cash invested $55,000.00, EGI $1,800.00/month, $21,600.00/year, NOI $16,200.00/year ($1,350.00/month), cash flow $1,800.00/year, $150.00/month, cap rate 6.48%, cash-on-cash 3.27%, GRM 10.42, rent-to-price 0.80% — With 10% vacancy the effective gross income falls to $1,800.00 a month, $21,600.00 a year; the NOI is $16,200.00 and the cash flow is $1,800.00 a year, $150.00 a month — a cap rate of 6.48% and a 3.27% cash-on-cash return. With a monthly operating expenses $600.00, Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $15,600.00/year ($1,300.00/month), cash flow $1,200.00/year, $100.00/month, cap rate 6.24%, cash-on-cash 2.18%, GRM 10.42, rent-to-price 0.80% — At $600.00 a month of operating expenses the NOI is $15,600.00 and the cash flow is $1,200.00 a year, $100.00 a month — a cap rate of 6.24% and a 2.18% cash-on-cash return. With a monthly mortgage $1,500.00, Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow −$600.00/year, −$50.00/month, cap rate 6.96%, cash-on-cash −1.09%, GRM 10.42, rent-to-price 0.80% — At a $1,500.00 monthly mortgage the cash flow is −$600.00 a year, −$50.00 a month, and the cash-on-cash return is −1.09% — yet the cap rate is unchanged at 6.96%, because the cap rate ignores financing. With a monthly rent $1,800.00, Down payment $50,000.00, cash invested $55,000.00, EGI $1,710.00/month, $20,520.00/year, NOI $15,120.00/year ($1,260.00/month), cash flow $720.00/year, $60.00/month, cap rate 6.05%, cash-on-cash 1.31%, GRM 11.57, rent-to-price 0.72% — With a monthly rent of $1,800.00 the effective gross income is $1,710.00 a month, $20,520.00 a year; the NOI is $15,120.00 and the cash flow is $720.00 a year, $60.00 a month — a cap rate of 6.05% and a 1.31% cash-on-cash return. With a monthly rent $0.00, Down payment $50,000.00, cash invested $55,000.00, EGI $0.00/month, $0.00/year, NOI −$5,400.00/year (−$450.00/month), cash flow −$19,800.00/year, −$1,650.00/month, cap rate −2.16%, cash-on-cash −36.00%, GRM 0.00, rent-to-price 0.00% — With no rent at all the effective gross income is $0.00, the NOI is −$5,400.00, and the cash flow is −$19,800.00 a year, −$1,650.00 a month — a cap rate of −2.16% and a cash-on-cash return of −36.00%. With a vacancy 0%, Down payment $50,000.00, cash invested $55,000.00, EGI $2,000.00/month, $24,000.00/year, NOI $18,600.00/year ($1,550.00/month), cash flow $4,200.00/year, $350.00/month, cap rate 7.44%, cash-on-cash 7.64%, GRM 10.42, rent-to-price 0.80% — With no vacancy the effective gross income is the full $2,000.00 a month, $24,000.00 a year; the NOI is $18,600.00 and the cash flow is $4,200.00 a year, $350.00 a month — a cap rate of 7.44% and a 7.64% cash-on-cash return. With a vacancy 100%, Down payment $50,000.00, cash invested $55,000.00, EGI $0.00/month, $0.00/year, NOI −$5,400.00/year (−$450.00/month), cash flow −$19,800.00/year, −$1,650.00/month, cap rate −2.16%, cash-on-cash −36.00%, GRM 10.42, rent-to-price 0.80% — With 100% vacancy nothing is collected, so the figures are identical to the zero-rent edge: NOI −$5,400.00, cash flow −$19,800.00 a year, −$1,650.00 a month, cap rate −2.16%. With a purchase price $100,000.00, Down payment $20,000.00, cash invested $25,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 17.40%, cash-on-cash 12.00%, GRM 4.17, rent-to-price 2.00% — At a $100,000.00 purchase price the down payment is $20,000.00 and the cash invested is $25,000.00; the NOI is still $17,400.00, so the cap rate is 17.40% and the cash-on-cash return is 12.00% — the rent-to-price ratio is 2.00%. With a monthly mortgage $0.00 (no loan), Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $17,400.00/year, $1,450.00/month, cap rate 6.96%, cash-on-cash 31.64%, GRM 10.42, rent-to-price 0.80% — With no mortgage the cash flow equals the NOI: $17,400.00 a year, $1,450.00 a month — a 31.64% cash-on-cash return, while the cap rate stays 6.96%. With a monthly operating expenses $0.00, Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $22,800.00/year ($1,900.00/month), cash flow $8,400.00/year, $700.00/month, cap rate 9.12%, cash-on-cash 15.27%, GRM 10.42, rent-to-price 0.80% — With no operating expenses the NOI is the full $22,800.00 of effective gross income and the cash flow is $8,400.00 a year, $700.00 a month — a cap rate of 9.12% and a 15.27% cash-on-cash return. With a monthly rent $3,000.00, Down payment $50,000.00, cash invested $55,000.00, EGI $2,850.00/month, $34,200.00/year, NOI $28,800.00/year ($2,400.00/month), cash flow $14,400.00/year, $1,200.00/month, cap rate 11.52%, cash-on-cash 26.18%, GRM 6.94, rent-to-price 1.20% — With a monthly rent of $3,000.00 the effective gross income is $2,850.00 a month, $34,200.00 a year; the NOI is $28,800.00 and the cash flow is $14,400.00 a year, $1,200.00 a month — a cap rate of 11.52% and a 26.18% cash-on-cash return.
Output · formula · meaning
| Output | Formula | What it means |
|---|
| Purchase price | input | $250,000.00. |
| Down payment percentage | input | 20%. |
| Closing costs | input | $5,000.00. |
| Monthly rent | input | $2,000.00. |
| Vacancy rate | input | 5%. |
| Monthly operating expenses | input | $450.00. |
| Monthly mortgage payment | input | $1,200.00. |
| Other monthly income | input | $0.00. |
| Down payment | purchase price × down payment % | $50,000.00. |
| Cash invested | down payment + closing costs | $55,000.00. |
| Effective gross income (monthly) | (monthly rent + other monthly income) × (1 − vacancy rate) | $1,900.00. |
| Effective gross income (annual) | monthly EGI × 12 | $22,800.00. |
| Net operating income (NOI) | annual EGI − annual operating expenses | $17,400.00. |
| NOI (monthly) | NOI ÷ 12 | $1,450.00. |
| Cash flow (annual) | NOI − annual mortgage payments | $3,000.00. |
| Cash flow (monthly) | annual cash flow ÷ 12 | $250.00. |
| Cap rate | NOI ÷ purchase price × 100 | 6.96%. |
| Cash-on-cash return | annual cash flow ÷ cash invested × 100 | 5.45%. |
| Gross rent multiplier | purchase price ÷ annual gross rent | 10.42. |
| Rent-to-price | monthly rent ÷ purchase price × 100 | 0.80%. |
| smallest cent monthly rent whose monthly cash flow reaches $500.00 | exact 2263.1579 | $2,263.16 → $2,263.16. |
| Below the revr1 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $2,149.99/month, $25,799.88/year, NOI $20,399.88/year ($1,699.99/month), cash flow $5,999.88/year, $499.99/month, cap rate 8.16%, cash-on-cash 10.91%, GRM 9.21, rent-to-price 0.91%. |
| Above the revr1 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $2,150.01/month, $25,800.12/year, NOI $20,400.12/year ($1,700.01/month), cash flow $6,000.12/year, $500.01/month, cap rate 8.16%, cash-on-cash 10.91%, GRM 9.21, rent-to-price 0.91%. |
| purchase price for a cap rate of exactly 8.00% | exact 217500.0000 | $217,500.00 → $217,500.00. |
| Below the revr2 star | neighbor | Down payment $43,500.00, cash invested $48,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.00%, cash-on-cash 6.19%, GRM 9.06, rent-to-price 0.92%. |
| Above the revr2 star | neighbor | Down payment $43,500.00, cash invested $48,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.00%, cash-on-cash 6.19%, GRM 9.06, rent-to-price 0.92%. |
| monthly rent for a rent-to-price ratio of exactly 1.00% (the 1% rule) | exact 2500.0000 | $2,500.00 → $2,500.00. |
| Below the revr3 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $2,374.99/month, $28,499.88/year, NOI $23,099.88/year ($1,924.99/month), cash flow $8,699.88/year, $724.99/month, cap rate 9.24%, cash-on-cash 15.82%, GRM 8.33, rent-to-price 1.00%. |
| Above the revr3 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $2,375.01/month, $28,500.12/year, NOI $23,100.12/year ($1,925.01/month), cash flow $8,700.12/year, $725.01/month, cap rate 9.24%, cash-on-cash 15.82%, GRM 8.33, rent-to-price 1.00%. |
| down payment percentage for a cash-on-cash return of exactly 8.00% | exact 13.0000 | 13.00% → 13.00%. |
| Below the revr4 star | neighbor | Down payment $32,475.00, cash invested $37,475.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 8.01%, GRM 10.42, rent-to-price 0.80%. |
| Above the revr4 star | neighbor | Down payment $32,525.00, cash invested $37,525.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 7.99%, GRM 10.42, rent-to-price 0.80%. |
| smallest cent monthly rent whose monthly cash flow is at least $0.01 (positive cash flow) | exact 1736.8474 | $1,736.85 → $1,736.85. |
| Below the revr5 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $1,650.00/month, $19,800.00/year, NOI $14,400.00/year ($1,200.00/month), cash flow $0.00/year, $0.00/month, cap rate 5.76%, cash-on-cash 0.00%, GRM 11.99, rent-to-price 0.69%. |
| Above the revr5 star | neighbor | Down payment $50,000.00, cash invested $55,000.00, EGI $1,650.02/month, $19,800.24/year, NOI $14,400.24/year ($1,200.02/month), cash flow $0.24/year, $0.02/month, cap rate 5.76%, cash-on-cash 0.00%, GRM 11.99, rent-to-price 0.69%. |
| purchase price for a gross rent multiplier of exactly 10.00 | exact 240000.0000 | $240,000.00 → $240,000.00. |
| Below the revr6 star | neighbor | Down payment $48,000.00, cash invested $53,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 7.25%, cash-on-cash 5.66%, GRM 10.00, rent-to-price 0.83%. |
| Above the revr6 star | neighbor | Down payment $48,000.00, cash invested $53,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 7.25%, cash-on-cash 5.66%, GRM 10.00, rent-to-price 0.83%. |
| monthly rent $2,400.00 | same model | Down payment $50,000.00, cash invested $55,000.00, EGI $2,280.00/month, $27,360.00/year, NOI $21,960.00/year ($1,830.00/month), cash flow $7,560.00/year, $630.00/month, cap rate 8.78%, cash-on-cash 13.75%, GRM 8.68, rent-to-price 0.96%. |
| purchase price $200,000.00 | same model | Down payment $40,000.00, cash invested $45,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.70%, cash-on-cash 6.67%, GRM 8.33, rent-to-price 1.00%. |
| down payment 25% | same model | Down payment $62,500.00, cash invested $67,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 4.44%, GRM 10.42, rent-to-price 0.80%. |
| vacancy 10% | same model | Down payment $50,000.00, cash invested $55,000.00, EGI $1,800.00/month, $21,600.00/year, NOI $16,200.00/year ($1,350.00/month), cash flow $1,800.00/year, $150.00/month, cap rate 6.48%, cash-on-cash 3.27%, GRM 10.42, rent-to-price 0.80%. |
| monthly operating expenses $600.00 | same model | Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $15,600.00/year ($1,300.00/month), cash flow $1,200.00/year, $100.00/month, cap rate 6.24%, cash-on-cash 2.18%, GRM 10.42, rent-to-price 0.80%. |
| monthly mortgage $1,500.00 | same model | Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow −$600.00/year, −$50.00/month, cap rate 6.96%, cash-on-cash −1.09%, GRM 10.42, rent-to-price 0.80%. |
| monthly rent $1,800.00 | same model | Down payment $50,000.00, cash invested $55,000.00, EGI $1,710.00/month, $20,520.00/year, NOI $15,120.00/year ($1,260.00/month), cash flow $720.00/year, $60.00/month, cap rate 6.05%, cash-on-cash 1.31%, GRM 11.57, rent-to-price 0.72%. |
Who uses this
- The investor checking a $250,000.00 rental: they learn it clears $250.00 a month, a 6.96% cap rate — and they check the $2,400.00 rent branch to see the cash flow reach $630.00 a month.
- The buyer comparing two prices: they learn at $200,000.00 the cap rate is 8.70% and the rent-to-price ratio hits 1.00% — and they check the $217,500.00 reverse to see the price for an 8.00% cap rate.
- The landlord testing a higher mortgage: they learn at $1,500.00 a month the property loses $50.00 a month even though the cap rate stays 6.96% — and they check the $2,263.16 reverse to see the rent that clears $500.00 a month.
- The investor hunting for positive cash flow: they learn $1,736.85 is the smallest rent that clears $0.01 a month — and they check the $2,500.00 reverse to see the 1% rule pay $725.00 a month.
Accuracy & limitations
The math is first-principles: the effective gross income is the monthly rent plus other monthly income times one minus the vacancy rate, rounded to cents first, then the annual EGI is the monthly EGI times 12; the NOI is the annual EGI minus annual operating expenses; the cash flow is the NOI minus annual mortgage payments; the cap rate is the NOI divided by the purchase price; the cash-on-cash return is the annual cash flow divided by the cash invested; each rounded to cents half-up, and the monthly cash flow is computed from the ROUNDED annual cash flow, not the unrounded figure. What the model cannot do is predict your actual return: it counts cash flow only — it does not include the mortgage principal you pay down or any rise in the property’s value; it does not include income tax, so your after-tax return is lower; the vacancy rate is an average, so a single empty month costs far more than 5% of that month’s rent; operating expenses are lumpy — a new roof or a broken furnace lands in one year, not spread evenly; and the rent and the price are today’s figures, not a forecast. Use it to compare properties on equal footing — then check the lease, the tax bill, and the roof before you buy.
Cite this calculatorBright Side Kit. “Rental Property ROI Calculator: Cash Flow & Cap Rate” brightoolbox.com, 2026. Method: effective gross income = (monthly rent + other monthly income) × (1 − vacancy rate); NOI = annual effective gross income − annual operating expenses (mortgage excluded); annual cash flow = NOI − annual mortgage payments; monthly cash flow = annual cash flow ÷ 12; cap rate = NOI ÷ purchase price; cash-on-cash return = annual cash flow ÷ cash invested; gross rent multiplier = purchase price ÷ annual gross rent; rent-to-price = monthly rent ÷ purchase price. Reverses: smallest cent monthly rent whose monthly cash flow reaches $500.00 is $2,263.16 (at $2,263.16 the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $2,150.00/month, $25,800.00/year, NOI $20,400.00/year ($1,700.00/month), cash flow $6,000.00/year, $500.00/month, cap rate 8.16%, cash-on-cash 10.91%, GRM 9.21, rent-to-price 0.91%; at the lower neighbor the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $2,149.99/month, $25,799.88/year, NOI $20,399.88/year ($1,699.99/month), cash flow $5,999.88/year, $499.99/month, cap rate 8.16%, cash-on-cash 10.91%, GRM 9.21, rent-to-price 0.91%); purchase price for a cap rate of exactly 8.00% is $217,500.00 (at $217,500.00 the figures are Down payment $43,500.00, cash invested $48,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.00%, cash-on-cash 6.19%, GRM 9.06, rent-to-price 0.92%; at the lower neighbor the figures are Down payment $43,500.00, cash invested $48,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 8.00%, cash-on-cash 6.19%, GRM 9.06, rent-to-price 0.92%); monthly rent for a rent-to-price ratio of exactly 1.00% (the 1% rule) is $2,500.00 (at $2,500.00 the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $2,375.00/month, $28,500.00/year, NOI $23,100.00/year ($1,925.00/month), cash flow $8,700.00/year, $725.00/month, cap rate 9.24%, cash-on-cash 15.82%, GRM 8.33, rent-to-price 1.00%; at the lower neighbor the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $2,374.99/month, $28,499.88/year, NOI $23,099.88/year ($1,924.99/month), cash flow $8,699.88/year, $724.99/month, cap rate 9.24%, cash-on-cash 15.82%, GRM 8.33, rent-to-price 1.00%); down payment percentage for a cash-on-cash return of exactly 8.00% is 13.00% (at 13.00% the figures are Down payment $32,500.00, cash invested $37,500.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 8.00%, GRM 10.42, rent-to-price 0.80%; at the lower neighbor the figures are Down payment $32,475.00, cash invested $37,475.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 8.01%, GRM 10.42, rent-to-price 0.80%); smallest cent monthly rent whose monthly cash flow is at least $0.01 (positive cash flow) is $1,736.85 (at $1,736.85 the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $1,650.01/month, $19,800.12/year, NOI $14,400.12/year ($1,200.01/month), cash flow $0.12/year, $0.01/month, cap rate 5.76%, cash-on-cash 0.00%, GRM 11.99, rent-to-price 0.69%; at the lower neighbor the figures are Down payment $50,000.00, cash invested $55,000.00, EGI $1,650.00/month, $19,800.00/year, NOI $14,400.00/year ($1,200.00/month), cash flow $0.00/year, $0.00/month, cap rate 5.76%, cash-on-cash 0.00%, GRM 11.99, rent-to-price 0.69%); purchase price for a gross rent multiplier of exactly 10.00 is $240,000.00 (at $240,000.00 the figures are Down payment $48,000.00, cash invested $53,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 7.25%, cash-on-cash 5.66%, GRM 10.00, rent-to-price 0.83%; at the lower neighbor the figures are Down payment $48,000.00, cash invested $53,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 7.25%, cash-on-cash 5.66%, GRM 10.00, rent-to-price 0.83%). Defaults: Down payment $50,000.00, cash invested $55,000.00, EGI $1,900.00/month, $22,800.00/year, NOI $17,400.00/year ($1,450.00/month), cash flow $3,000.00/year, $250.00/month, cap rate 6.96%, cash-on-cash 5.45%, GRM 10.42, rent-to-price 0.80% Bright Side Kit. "Rental Property ROI Calculator: Cash Flow & Cap Rate" https://brightoolbox.com/rental-property-roi-calculator/ Accessed October 26, 2026.
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Frequently asked questions
What is a good cap rate for a rental property?
6.96% on the defaults — and higher is better. The cap rate is the NOI divided by the purchase price: $17,400.00 ÷ $250,000.00 = 6.96%. At a $200,000.00 purchase price the same rent gives an 8.70% cap rate, and at a $2,400.00 rent the cap rate is 8.78%.
How do I calculate rental property ROI?
EGI, then NOI, then cash flow, then the ratios. The effective gross income is ($2,000.00 + $0.00) × (1 − 5%) = $1,900.00 a month; the NOI is $22,800.00 − $5,400.00 = $17,400.00 a year; the cash flow is $17,400.00 − $14,400.00 = $3,000.00 a year, $250.00 a month; the cap rate is 6.96% and the cash-on-cash return is 5.45%.
What is cash-on-cash return?
The annual cash flow divided by the cash you put in. On the defaults the cash flow is $3,000.00 a year and the cash invested is $55,000.00, so the cash-on-cash return is $3,000.00 ÷ $55,000.00 × 100 = 5.45%.
What monthly rent do I need for $500 a month of cash flow?
$2,263.16. At $2,263.16 the effective gross income is $2,150.00 a month, the NOI is $20,400.00, and the cash flow is $6,000.00 a year, $500.00 a month. At $2,263.15 the cash flow is $499.99 a month — one cent of rent short.
What is the 1% rule for rental properties?
Monthly rent of at least 1% of the purchase price. A $250,000 property should rent for at least $2,500 a month; at $2,500.00 the rent-to-price ratio is 1.00% and the cash flow is $725.00 a month. The headline property is at 0.80% — below the rule.
Why can cash flow be negative when the cap rate looks good?
Because the cap rate ignores financing. At a $1,500.00 monthly mortgage the cash flow is −$600.00 a year, −$50.00 a month, while the cap rate is unchanged at 6.96% — the mortgage comes out after NOI.
What rent makes the property break even?
$1,736.85. That is the smallest cent rent whose monthly cash flow is at least $0.01: at $1,736.85 the cash flow is $0.12 a year, $0.01 a month. At $1,736.84 the monthly cash flow is $0.00 — break-even, not positive.
What purchase price gives an 8% cap rate?
$217,500.00. At $217,500.00 the NOI is still $17,400.00, so the cap rate is $17,400.00 ÷ $217,500.00 × 100 = 8.00%, and the cash-on-cash return is 6.19%.