acalculator

Is this rental property worth it?

Enter the price, loan, rent, and running costs of a rental to see its monthly cash flow, its first-year returns, and what it earns by the time you sell.

Your numbers

Investment property loans often need 20% to 25% down.
An example rate, not today’s rate. Use the rate your lender quotes.
Operating costs
Purchase costs
Growth and sale
Monthly cash flow
$158.07

A $300,000.00 rental renting for $2,400.00 a month has a monthly cash flow of $158.07, a cap rate of 6.62%, and a cash-on-cash return of 2.34%.

Pays for itself

  1. Costs more than it earns
  2. Pays for itself
Cap rate
6.62%
Cash-on-cash return
2.34%
Net operating income
$19,860.00
Monthly loan payment
$1,496.93
Debt service coverage
1.11
Gross rent multiplier
10.42
Cash you put in
$81,000.00
Sale price
$403,174.91
Cash from the sale
$185,906.56
Total cash flow
$48,040.97
Total profit
$152,947.53
Internal rate of return (IRR)
12.39%
Years
10

Monthly cash flow: $158.07. A $300,000.00 rental renting for $2,400.00 a month has a monthly cash flow of $158.07, a cap rate of 6.62%, and a cash-on-cash return of 2.34%.

How does your equity grow?

How does the cash flow change each year?

What does each year look like?

The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use

How to calculate

Computes the monthly cash flow, cap rate, cash-on-cash return, and debt service coverage of a rental property bought with a loan, and the profit and IRR when it is sold after a holding period.

Example with the default inputs (Purchase price $300,000.00, Down payment 25%, Interest rate 7%, Loan term (years) 30, Monthly rent $2,400.00, Vacancy 5%, Other monthly income $0.00, Property tax $3,600.00, Insurance $1,500.00, HOA dues $0.00, Maintenance and repairs $2,400.00, Management fee 0%, Other yearly costs $0.00, Closing costs $6,000.00, Repairs before renting $0.00, Rent growth a year 3%, Cost growth a year 3%, Value growth a year 3%, Years until you sell 10, Cost to sell 6%): A $300,000.00 rental renting for $2,400.00 a month has a monthly cash flow of $158.07, a cap rate of 6.62%, and a cash-on-cash return of 2.34%.

Method: Each year: rent collected = 12 × (rent + other income) × (1 + rent growth)^(t−1) × (1 − vacancy); NOI = rent collected − operating costs; cash flow = NOI − loan payments. Cap rate = NOI₁ ÷ price; cash-on-cash = cash flow₁ ÷ cash in; profit = cash flows + sale proceeds − cash in; IRR solves NPV = 0.

  • Rent, other income, and costs grow once a year at their rates; the value grows at its rate each year.
  • The loan has a fixed rate with level monthly payments; each year’s cash flow comes at the end of the year.
  • The property is sold at the end of the last year for its grown value, less the cost to sell and the loan balance.
  • Income tax, depreciation, and capital gains tax are not included.
  • The defaults are examples, not market figures.

Machine-readable copies: Markdown, JSON.

Worked examples

Each example is checked against the calculator on every build.

  1. Purchase price $300,000.00, Down payment 25%, Closing costs $6,000.00, Repairs before renting $0.00, Interest rate 7%, Loan term (years) 30, Monthly rent $2,400.00, Other monthly income $0.00, Vacancy 5%, Property tax $3,600.00, Insurance $1,500.00, HOA dues $0.00, Maintenance and repairs $2,400.00, Management fee 0%, Other yearly costs $0.00, Rent growth a year 3%, Cost growth a year 3%, Value growth a year 3%, Years until you sell 10, Cost to sell 6% gives Monthly cash flow $158.07, Net operating income $19,860.00, Cap rate 6.62%, Cash-on-cash return 2.341769%, Debt service coverage 1.105596, Cash you put in $81,000.00, Cash from the sale $185,906.56, Total cash flow $48,040.97, Total profit $152,947.53, Internal rate of return (IRR) 12.394179%.Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html
  2. Purchase price $200,000.00, Down payment 100%, Closing costs $4,000.00, Repairs before renting $6,000.00, Interest rate 7%, Loan term (years) 30, Monthly rent $1,800.00, Other monthly income $0.00, Vacancy 0%, Property tax $2,400.00, Insurance $1,200.00, HOA dues $0.00, Maintenance and repairs $1,800.00, Management fee 10%, Other yearly costs $0.00, Rent growth a year 0%, Cost growth a year 0%, Value growth a year 0%, Years until you sell 5, Cost to sell 5% gives Monthly cash flow $1,170.00, Net operating income $14,040.00, Cap rate 7.02%, Cash-on-cash return 6.685714%, Gross rent multiplier 9.259259, Cash from the sale $190,000.00, Total profit $50,200.00, Internal rate of return (IRR) 4.960794%.Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html
  3. Purchase price $250,000.00, Down payment 20%, Closing costs $5,000.00, Repairs before renting $0.00, Interest rate 6%, Loan term (years) 5, Monthly rent $2,000.00, Other monthly income $100.00, Vacancy 8%, Property tax $3,000.00, Insurance $1,200.00, HOA dues $50.00, Maintenance and repairs $2,000.00, Management fee 8%, Other yearly costs $500.00, Rent growth a year 2%, Cost growth a year 3%, Value growth a year 4%, Years until you sell 8, Cost to sell 7% gives Monthly cash flow -$2,697.45, Net operating income $14,029.28, Debt service coverage 0.302363, Total cash flow -$113,839.12, Cash from the sale $318,192.30, Total profit $149,353.18, Internal rate of return (IRR) 9.551176%.Source: Office of the Comptroller of the Currency, Comptroller’s Handbook, Commercial Real Estate Lending (net operating income and capitalization rate). https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/index-commercial-real-estate-lending.html

How it works

Write P for the price, d for the down payment as a decimal, and H for the years until you sell. Tax, insurance, and maintenance are yearly; an amount entered per month with the switch counts as 12 times that. Empty optional fields count as 0.

  1. Loan and cash in: loan L = P × (1 − d); cash you put in C = P × d + closing costs + repairs. There is no answer when C is 0.
  2. Loan payment: with r = the yearly rate ÷ 1200 and n = years × 12, payment = L × r ÷ (1 − (1 + r)^−n) (L ÷ n at 0%; 0 with no loan). The balance after k payments is L × (1 + r)^k − payment × ((1 + r)^k − 1) ÷ r (L − payment × k at 0%), and 0 once k reaches n.
  3. Each year t, from 1 to H:
    • rent and other income before vacancy: 12 × (rent + other income) × (1 + rent growth)^(t − 1);
    • rent collected: that × (1 − vacancy);
    • operating costs: (tax + insurance + 12 × HOA dues + maintenance + other yearly costs) × (1 + cost growth)^(t − 1), plus the management fee × rent collected;
    • net operating income (NOI): rent collected − operating costs;
    • loan payments: payment × the number of the year's 12 months that fall within the loan's n months;
    • cash flow: NOI − loan payments;
    • loan balance: the balance after 12t payments; value: P × (1 + value growth)^t; equity: value − balance.
  4. First-year figures: monthly cash flow = year 1 cash flow ÷ 12; cap rate = 100 × NOI₁ ÷ P; cash-on-cash return = 100 × cash flow₁ ÷ C; debt service coverage = NOI₁ ÷ year 1 loan payments (left out with no loan); gross rent multiplier = P ÷ (12 × (rent + other income)). Each of these ratios, and the IRR below, is left out when it has no finite value (its divisor is 0).
  5. The sale at the end of year H: sale price = the value in year H; cash from the sale = sale price × (1 − cost to sell) − the loan balance then.
  6. Totals: cash flow while you own it = the sum of the yearly cash flows; total profit = that + cash from the sale − C.
  7. IRR: the flows are −C now, then each year's cash flow at the end of that year, with the cash from the sale added to year H. When the non-zero flows change sign exactly once (so there is one answer), the IRR is the yearly rate i with Σ flow_t ÷ (1 + i)^t = 0, searched between −99.9999% and 100,000,000%; otherwise it is left out.

Assumptions

  • Growth rates apply once a year, from the second year; the value grows from the purchase.
  • The loan has a fixed rate and level monthly payments; the yearly flows come at the end of each year.
  • Income tax, depreciation, capital gains tax, and loan fees are not included.
  • The defaults are examples, not market data.

Worked examples by hand

A $300,000 rental with 25% down at 7% for 30 years, renting for $2,400. L = $225,000 and C = 75,000 + 6,000 = $81,000. (1 + r)^−360 = 0.123206, so the payment is 225,000 × 0.0058333 ÷ (1 − 0.123206) = $1,496.93, $17,963.17 a year. Year 1: rent collected 28,800 × 0.95 = $27,360; costs 3,600 + 1,500 + 2,400 = $7,500; NOI = $19,860; cash flow = 19,860 − 17,963.17 = $1,896.83, $158.07 a month. Cap rate = 19,860 ÷ 300,000 = 6.62%; cash-on-cash = 1,896.83 ÷ 81,000 = 2.34%; debt service coverage = 19,860 ÷ 17,963.17 = 1.11. After 10 years the value is 300,000 × 1.03^10 = $403,174.91 and the balance $193,077.86, so the sale brings 403,174.91 × 0.94 − 193,077.86 = $185,906.56. The ten cash flows add up to $48,040.97, so the profit is 48,040.97 + 185,906.56 − 81,000 = $152,947.53, and the IRR is 12.39%.

A $200,000 cash purchase with $4,000 of closing costs and $6,000 of repairs, renting for $1,800, no growth, sold after 5 years. C = $210,000. Rent collected is $21,600 a year; costs are 2,400 + 1,200 + 1,800 + 10% × 21,600 = $7,560; NOI and cash flow are $14,040, $1,170 a month. Cap rate = 7.02%; cash-on-cash = 14,040 ÷ 210,000 = 6.69%; gross rent multiplier = 200,000 ÷ 21,600 = 9.26. The sale brings 200,000 × 0.95 = $190,000, so the profit is 5 × 14,040 + 190,000 − 210,000 = $50,200. The rate that makes −210,000 plus five yearly $14,040 and $190,000 at year 5 worth zero is 4.96%.

A $250,000 rental with 20% down on a 5-year loan at 6%, sold after 8 years. The payment is $3,866.56 a month ($46,398.72 a year), far more than the $14,029.28 of NOI in year 1, so the cash flow is −$2,697.45 a month and the debt service coverage 0.30. Once the loan is repaid after year 5, the cash flow turns positive. The eight cash flows add up to −$113,839.12, the sale brings $318,192.30, and the profit is $149,353.18; the flows change sign once, and the IRR is 9.55%.

Other questions people ask

How do I calculate cash flow on a rental property?

Take the rent you collect after vacancy, subtract the operating costs (tax, insurance, dues, upkeep, management), and subtract the loan payments. In the example, $27,360 of rent collected less $7,500 of costs is $19,860 of net operating income, and less $17,963 of loan payments leaves $1,897 a year, $158 a month.

What is a good cap rate?

The cap rate is the net operating income divided by the price, so it ignores the loan. It depends on the market and the property’s risk; many residential rentals fall between about 4% and 10%. Compare it with similar properties nearby rather than a fixed number.

What is cash-on-cash return?

The first year’s cash flow divided by the cash you put in (down payment, closing costs, and repairs). It shows the yearly return on your own money. The example earns $1,897 on $81,000, 2.34%.

What does the IRR include?

Everything: the cash you put in, every year’s cash flow, and the cash from the sale. The IRR is the yearly rate that makes them add up to zero once discounted. The example returns 12.39% a year over 10 years, mostly from the rise in value and the loan paid down.

Why is my cash flow negative when the profit is positive?

Loan payments can take more than the rent brings in, especially with a short loan, while the value rises and the loan is paid down. The profit counts the sale; the cash flow does not. A negative cash flow means you pay in each month.

Does the calculator include taxes on rental income?

No. Income tax, depreciation, and capital gains tax depend on your situation. The results are before tax.

Are the default figures typical?

They are examples, not market data. Use real quotes for the price, rate, rent, tax, and insurance.