What is a "good" Cap Rate?

It varies by market. In high-demand cities, 4-5% may be common, while in smaller markets, investors may look for 8-10% to account for higher risk.

How much should I set aside for maintenance?

A common rule of thumb is to set aside 1% of the property value annually, or 10-15% of the monthly rent, for ongoing maintenance and repairs.

What is Cash-on-Cash return?

It is the annual pre-tax cash flow divided by the total cash invested (down payment, closing costs, and initial repairs).

What is the 50% Rule?

The 50% Rule suggests that approximately 50% of a property's gross income will go toward operating expenses, not including the mortgage payment.

Should I include my mortgage in the Cap Rate?

No. Cap Rate is calculated as if the property were bought with cash. This allows you to compare the profitability of properties regardless of how they are financed.

What is Net Operating Income (NOI)?

NOI is the total income from the property minus all operating expenses (taxes, insurance, management, repairs). It does not include mortgage payments.

How does vacancy rate affect my profit?

Even a 5% vacancy rate (about 2 weeks per year) reduces your annual gross income significantly. Always factor this into your ROI calculations.

What are "Capital Expenditures" (CapEx)?

CapEx are major, irregular expenses that extend the life of the property, such as a new roof, new HVAC system, or parking lot repaving.

Is a rental property a good hedge against inflation?

Yes. As inflation rises, both property values and rental rates typically increase, while your fixed-rate mortgage payment remains the same.

What is a 1031 Exchange?

It is a tax provision that allows you to sell a rental property and reinvest the proceeds into a new "like-kind" property while deferring all capital gains taxes.

Rental Property Calculator - Free Professional Tool | HomeCalc Pro

Introduction to Rental Property Calculator

Plan your project with precision using our 2026 standardized calculator.

How to Use the Rental Property Calculator

Enter Purchase Price: Input the total acquisition cost, including the purchase price and immediate repair costs.
Set Rental Income: Enter the expected monthly gross rent you will collect from all tenants.
Input Operating Expenses: Include monthly property taxes, insurance, and an estimate for maintenance (typically 1% of value per year).
Factor in Vacancy: Apply a vacancy rate (standard is 5-8%) to account for periods between tenants.
Calculate ROI: Press calculate to see your monthly cash flow, cap rate, and cash-on-cash return.

Understanding Rental Property

A successful rental property must do more than just "cover the mortgage." Professional investors look at several key metrics: Cash Flow is the money left over after all expenses and the mortgage are paid. Cap Rate (Capitalization Rate) measures the property's natural rate of return without factoring in debt, allowing you to compare different properties on an apples-to-apples basis. Cash-on-Cash Return measures the return on the actual cash you invested (your down payment and closing costs). By analyzing these three numbers together, you can determine if a property is a "yield play" (high cash flow) or an "equity play" (high appreciation potential).

One of the most important metrics for residential rentals is the 1% Rule, which suggests that a property should rent for at least 1% of its total purchase price. While difficult to find in many modern markets, it remains a useful benchmark for identifying high-performing cash-flow opportunities. Furthermore, consider the Operating Expense Ratio (OER). On average, 35% to 50% of your gross rental income will go toward non-mortgage expenses like taxes, insurance, repairs, and management. If your calculations show expenses significantly lower than 35%, you are likely underestimating the long-term cost of maintaining the asset.

Finally, don't overlook the Tax Benefits of rental ownership. The IRS allows you to deduct Depreciation—a non-cash expense that accounts for the "wear and tear" on the building—over 27.5 years. This deduction can often offset your entire rental profit, allowing you to collect cash flow while showing a loss for tax purposes. Additionally, mortgage interest and all legitimate business expenses are fully deductible. Our calculator focuses on the "pre-tax" performance, so we recommend consulting with a tax professional to see how real estate can further improve your after-tax bottom line.

Formula & Calculation Method

The Net Operating Income (NOI) is the foundation for all rental property metrics, representing total income minus all operating expenses.

Cap Rate = (Annual NOI / Purchase Price) × 100

Example Calculation:

If a property generates $12,000 in annual NOI and costs $150,000, its Cap Rate is 8%.

Tips for Accurate Results

1Always include a "vacancy factor" in your calculations; even the best properties have downtime.
2Budget at least 10% of gross rent for property management, even if you plan to manage it yourself initially.
3Check local market "comps" to ensure your estimated rental income is realistic for the neighborhood.
4Don't forget about "Capital Expenditures" (CapEx) like roof or HVAC replacement; save a monthly amount for these big-ticket items.
5Look for properties in areas with strong job growth and good school districts to ensure long-term appreciation.
6Understand the local landlord-tenant laws before buying in a new city or state.
7Analyze the "Price-to-Rent" ratio of the neighborhood to see if it's a better market for buyers or renters.
8Consider "House Hacking": living in one unit of a multi-family property while renting out the others to cover your mortgage.
9Perform thorough "Tenant Screening"; a bad tenant is much more expensive than a few weeks of vacancy.
10Keep a "Cash Reserve" of at least 3-6 months of expenses for each property to handle emergency repairs or extended vacancies.

Use these related HomeCalcPro tools to further analyze your real estate and financial strategy:

Mortgage Payment Calculator Home Equity Calculator Savings Growth Calculator Mortgage Payoff Calculator

Key Facts About Rental Property

•Real estate offers four types of returns: cash flow, appreciation, loan paydown, and tax benefits.
•Vacancy rates are a critical factor in actual rental performance.
•The "1% Rule" suggests a property should rent for at least 1% of its purchase price.
•Property management fees typically range from 8% to 12% of monthly rent.
•Depreciation is a powerful tax benefit that allows you to write off the structure's value over 27.5 years.
•Residential real estate has historically appreciated at a rate slightly above inflation.
•The "BRRRR" method (Buy, Rehab, Rent, Refinance, Repeat) is a popular strategy for scaling a rental portfolio.
•Location is the most important factor in real estate, as you can change the building but not its surroundings.
•Section 8 vouchers can provide guaranteed rental income for participating landlords.
•An umbrella insurance policy is highly recommended for landlords to protect against liability claims.

Rental Property Calculator