# Rental property calculator (cap rate and cash flow)

> Calculate a rental property's cap rate, NOI, monthly cash flow, cash-on-cash return and IRR, with a year-by-year projection of rent, value and equity.

Interactive version: https://www.calcopenly.com/finance/rental-property-calculator
Subject: Finance calculators

Net operating income (NOI) is the rent you collect after vacancy, minus operating costs: property tax, insurance, HOA dues, maintenance, management and other running costs, but not the mortgage. The cap rate is NOI divided by the purchase price. Cash flow is NOI minus the year's mortgage payments, and the cash-on-cash return divides it by the cash you put in: down payment plus closing and repair costs.

With the defaults, a $300,000 property bought with 25% down at 7% and rented for $2,600 a month has a year-1 NOI of $20,068.80, a 6.69% cap rate and $175.47 a month of cash flow, a 2.51% cash-on-cash return on $84,000. Sold after 10 years at 3% yearly appreciation, it returns an IRR of 12.13%.

Rent, costs and value grow at the rates you set. Income tax, depreciation and capital-gains tax are left out, so every figure is before tax.

## Inputs

- **Purchase price**
- **Down payment**
- **Closing costs and repairs at purchase**: Cash spent at purchase besides the down payment; added to the cash invested.
- **Loan interest rate (per year)**
- **Loan term**
- **Monthly rent**
- **Other monthly income**: Parking, laundry, storage or pet fees.
- **Vacancy and unpaid rent**: Share of scheduled rent you expect not to collect.
- **Property management (% of rent collected)**
- **Property tax (per year)**
- **Insurance (per year)**
- **HOA dues (per month)**
- **Maintenance and repairs (per year)**
- **Other operating costs (per year)**: Utilities you pay, landscaping, accounting, licences.
- **Property value growth (per year)**
- **Rent growth (per year)**
- **Operating cost growth (per year)**
- **Years until sale**
- **Selling costs (% of sale price)**: Agent commissions, transfer taxes and closing costs when you sell.

## Results

- Cash flow per month (year 1) — main result
- Cap rate
- Cash-on-cash return (year 1)
- Net operating income (year 1)
- Cash flow (year 1)
- Mortgage payment per month
- Cash invested
- Debt service coverage ratio
- Gross rent multiplier
- Internal rate of return (IRR)
- Cash from the sale
- Total profit
- Equity at sale

## Formula

$$
\text{NOI} = \text{rent collected} - \text{operating costs},\quad \text{cap rate} = \frac{\text{NOI}}{\text{price}},\quad \text{cash-on-cash} = \frac{\text{NOI} - \text{debt service}}{\text{cash invested}},\quad \sum_{t=0}^{N} \frac{CF_t}{(1+\text{IRR})^t} = 0
$$

## Worked examples

### $300,000 with 25% down at 7%

- Purchase price: 300,000
- Down payment: 25%
- Closing costs and repairs at purchase: 9000
- Loan interest rate (per year): 7%
- Loan term: 30 years
- Monthly rent: 2600
- Other monthly income: 0
- Vacancy and unpaid rent: 5%
- Property management (% of rent collected): 8%
- Property tax (per year): 3300
- Insurance (per year): 1500
- HOA dues (per month): 0
- Maintenance and repairs (per year): 2400
- Other operating costs (per year): 0
- Property value growth (per year): 3%
- Rent growth (per year): 3%
- Operating cost growth (per year): 3%
- Years until sale: 10 years
- Selling costs (% of sale price): 6%
- **Net operating income (year 1): 20,068.80**
- **Cap rate: 6.69%**
- **Cash flow (year 1): 2,105.63**
- **Cash flow per month (year 1): 175.47**
- **Cash-on-cash return (year 1): 2.51%**
- **Mortgage payment per month: 1,496.93**
- **Debt service coverage ratio: 1.12**
- **Internal rate of return (IRR): 12.13%**
- **Cash from the sale: 185,906.56**
- Checked against: Python decimal model: yearly rent and costs grown at 3%, month-by-month amortization, IRR by 300 bisection steps on the NPV of the ten yearly flows plus sale proceeds

### Cash purchase with no growth or costs

- Purchase price: 300,000
- Down payment: 100%
- Closing costs and repairs at purchase: 0
- Loan interest rate (per year): 7%
- Loan term: 30 years
- Monthly rent: 2000
- Other monthly income: 0
- Vacancy and unpaid rent: 0%
- Property management (% of rent collected): 0%
- Property tax (per year): 0
- Insurance (per year): 0
- HOA dues (per month): 0
- Maintenance and repairs (per year): 0
- Other operating costs (per year): 0
- Property value growth (per year): 0%
- Rent growth (per year): 0%
- Operating cost growth (per year): 0%
- Years until sale: 5 years
- Selling costs (% of sale price): 0%
- **Net operating income (year 1): 24,000.00**
- **Cap rate: 8.00%**
- **Cash-on-cash return (year 1): 8.00%**
- **Internal rate of return (IRR): 8.00%**
- **Total profit: 120,000.00**
- **Gross rent multiplier: 12.50**
- **Mortgage payment per month: 0.00**
- Checked against: Hand calculation: 2,000 × 12 = 24,000 ÷ 300,000 = 8%; five years of 8% cash yield with the price returned at the end is an 8% IRR

### Zero-rate loan, 5-year hold

- Purchase price: 300,000
- Down payment: 25%
- Closing costs and repairs at purchase: 9000
- Loan interest rate (per year): 0%
- Loan term: 30 years
- Monthly rent: 2600
- Other monthly income: 0
- Vacancy and unpaid rent: 5%
- Property management (% of rent collected): 8%
- Property tax (per year): 3300
- Insurance (per year): 1500
- HOA dues (per month): 0
- Maintenance and repairs (per year): 2400
- Other operating costs (per year): 0
- Property value growth (per year): 3%
- Rent growth (per year): 3%
- Operating cost growth (per year): 3%
- Years until sale: 5 years
- Selling costs (% of sale price): 6%
- **Mortgage payment per month: 625.00**
- **Cash flow (year 1): 12,568.80**
- **Cash-on-cash return (year 1): 14.96%**
- **Internal rate of return (IRR): 24.27%**
- **Cash from the sale: 139,415.29**
- **Equity at sale: 160,282.22**
- Checked against: Python decimal model as above: 225,000 ÷ 360 = 625 a month; balance after 60 payments 187,500; value 300,000 × 1.03^5

### Negative cash flow with 10% down (edge)

- Purchase price: 300,000
- Down payment: 10%
- Closing costs and repairs at purchase: 9000
- Loan interest rate (per year): 8%
- Loan term: 30 years
- Monthly rent: 1900
- Other monthly income: 0
- Vacancy and unpaid rent: 5%
- Property management (% of rent collected): 8%
- Property tax (per year): 3300
- Insurance (per year): 1500
- HOA dues (per month): 0
- Maintenance and repairs (per year): 2400
- Other operating costs (per year): 0
- Property value growth (per year): 3%
- Rent growth (per year): 3%
- Operating cost growth (per year): 3%
- Years until sale: 10 years
- Selling costs (% of sale price): 6%
- **Net operating income (year 1): 12,727.20**
- **Cash flow per month (year 1): -920.56**
- **Cash-on-cash return (year 1): -28.33%**
- **Debt service coverage ratio: 0.54**
- **Internal rate of return (IRR): 1.29%**
- Checked against: Python decimal model as above: 270,000 at 8% costs 1,981.16 a month, more than the 1,060.60 of monthly NOI

## Questions

### How do you calculate cap rate?

Divide the year's net operating income by the property's price or value and multiply by 100. NOI is collected rent minus operating costs, before mortgage payments. A property earning $24,000 of NOI on a $300,000 price has an 8% cap rate. Because financing is left out, the cap rate compares properties regardless of how each is paid for; it is the direct-capitalization rate appraisers use in value = NOI ÷ rate.

### What is the difference between cap rate and cash-on-cash return?

Cap rate ignores the loan; cash-on-cash return includes it. Cap rate = NOI ÷ price, and cash-on-cash = (NOI − mortgage payments) ÷ cash invested. With the defaults, NOI of $20,068.80 on $300,000 is a 6.69% cap rate, but after $17,963.17 of mortgage payments the $2,105.63 of cash flow is 2.51% of the $84,000 invested. Borrowing at a rate above the cap rate lowers the cash return.

### What is net operating income on a rental property?

Rental income collected, after vacancy, minus the costs of running the property: property tax, insurance, HOA dues, repairs and maintenance, management and utilities you pay. Mortgage principal and interest, depreciation and income tax are not operating costs. On the defaults, $31,200 of scheduled rent less 5% vacancy is $29,640 collected; $9,571.20 of costs leaves an NOI of $20,068.80.

### What does the debt service coverage ratio mean?

DSCR is NOI divided by the year's mortgage payments. At 1.0 the rent just covers the loan after operating costs; below 1.0 you pay the shortfall from other income. The defaults give 20,068.80 ÷ 17,963.17 = 1.12, and the 10%-down example at 8% gives 0.54. Lenders that qualify a loan on the property's income set their own minimum DSCR, so ask for yours before you rely on the rent.

### How accurate is the rental property calculator?

Accuracy depends on your inputs and the method's assumptions. Decimal arithmetic uses 50 significant digits, but estimates, numerical methods and source data can be less precise; the displayed rounding does not remove those limits. It is checked against 4 worked examples whose answers come from independent sources; for example, “$300,000 with 25% down at 7%” is checked against Python decimal model: yearly rent and costs grown at 3%, month-by-month amortization, IRR by 300 bisection steps on the NPV of the ten yearly flows plus sale proceeds.

### Where does the method come from?

Appraisal Institute, The Appraisal of Real Estate (15th ed.): direct capitalization, V = I ÷ R; IRS Publication 527 (2025), Residential Rental Property: rental income and expenses; Microsoft Excel IRR function.

## Sources

- Appraisal Institute, The Appraisal of Real Estate (15th ed.): direct capitalization, V = I ÷ R
- [IRS Publication 527 (2025), Residential Rental Property: rental income and expenses](https://www.irs.gov/publications/p527)
- [Microsoft Excel IRR function](https://support.microsoft.com/office/irr-function-64925eaa-9988-495b-b290-3ad0c163c1bc)

_Note: financial information, not professional advice._