Rental Property Cash Flow Calculator – Investment Analysis | SoCalSolver

NOI = Effective Gross Income minus Operating Expenses, representing property operating profit before debt service. It is financing-independent, making it ideal for comparing properties and calculating cap rate (NOI / Purchase Price). Lenders use NOI to underwrite mortgages and determine DSCR. Two properties with identical NOI indicate comparable operating performance, even if financing differs.

Cap Rate = NOI / Purchase Price (financing-independent, typically 4-8%), showing operating return only. Cash-on-Cash Return = Annual Cash Flow / Initial Investment (includes financing impact, typical target 8-15%), showing actual return on deployed capital. A 6% cap rate with 15% cash-on-cash indicates favorable leverage (borrowed money earns more than it costs). A 6% cap rate with 3% cash-on-cash indicates unfavorable leverage.

Yes, for buy-and-hold appreciation strategies where property value growth offsets annual shortfalls. Negative cash flow properties require owner capital supplementation (potentially thousands monthly) and are typical for emerging markets or short-term rentals. Lenders require DSCR greater than 1.0 (often 1.25x); negative cash flow properties require portfolio or hard money lenders, increasing borrowing costs. Suitable only for investors with substantial other income and capital reserves.

Conventional lenders require minimum 1.25x DSCR (NOI is 1.25 times annual debt service). Portfolio lenders may accept 1.15x. Hard money lenders accept 0.75-1.0x. DSCR less than 1.0 means NOI cannot cover debt—property cannot service its own debt and requires investor supplementation. Current lending environment favors 1.35x+ due to rising rates and tighter credit.

Year 1 ROI = (Annual Cash Flow + Principal Paid + Appreciation) / Initial Investment × 100. Example: $5,682 cash flow + $10,000 principal + $7,500 appreciation (3% of $250k) = $23,182 total / $55,000 investment = 42%. However, Year 1 is artificially high; multi-year IRR (5-10 year analysis) provides realistic expected return accounting for timing and compounding.

Maintenance covers routine repairs (HVAC servicing, plumbing, appliance fixes), typically 5-10% of annual rent. CapEx covers major replacements (roof, HVAC system, siding, foundation), typically 1-5% of annual rent. Together, they ensure property remains competitive and rentable. Under-reserving leads to deferred maintenance, tenant turnover, and declining property value.

1% Rule: Monthly Rent ≥ (Purchase Price × 1%). Example: $250,000 property should rent for $2,500+/month. Properties passing suggest fundamental cash flow viability assuming typical expenses. It is a starting filter only, not definitive—properties failing 1% might still be positive in low-cost markets; passing properties might show negative cash flow with high expenses. Always conduct detailed analysis after initial screening.

Vacancy rate directly reduces effective income. Each 1% increase in vacancy reduces annual gross rent by that percentage. Example: $30,000 rent at 5% vacancy = $1,500 loss; at 10% = $3,000 loss. Short-term rentals (Airbnb) typically experience 20-30% vacancy due to seasonality. Urban markets 3-5%, rural 10-15%, resorts 20-30%. Conservative analysis assumes 7-10%; local property management research refines assumptions.

Property management typically costs 8-12% of monthly rent. For $2,500/month, that is $250-$300/month ($3,000-$3,600 annually). Benefits: tenant screening, lease enforcement, maintenance coordination, eviction handling, accounting. Drawbacks: reduced cash flow, less personal control, variable quality. Most investors self-manage 1-2 single-family homes; multi-unit properties (4+ units) are difficult to self-manage. Calculate whether premium justifies self-management vs. actual time costs and risk.

Deductible: property tax, insurance, maintenance, repairs, utilities (landlord-paid), property management, HOA fees, advertising, depreciation (non-cash, 27.5 years residential), mortgage interest (not principal). Non-deductible: principal payments (equity build), capital improvements (depreciated over years), personal use portion. Passive loss limitations apply (consult tax professional). Depreciation is often deductible despite positive cash flow, creating phantom loss.