You enter the purchase price, financing terms, expected monthly rent, and operating expenses (property tax, insurance, maintenance, vacancy). The tool computes a standard amortization mortgage payment, subtracts vacancy from gross rent, then deducts all monthly expenses to arrive at cash flow. Cap rate uses gross annual rent against price; cash-on-cash compares annual cash flow to your down payment.
A 5% vacancy rate is a common conservative estimate for residential rentals, representing roughly 2–3 weeks of vacancy per year for tenant turnover. In hot rental markets you might use 3%; in weaker markets, 8–10%.
No. If you plan to hire a property manager, add their fee (typically 8–12% of collected rent) to your monthly expenses. Self-managing saves money but requires time and effort.
The 1% rule is a quick screening test: monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month to have a chance at positive cash flow. It's a rough filter, not a guarantee.
Residential rental property can be depreciated over 27.5 years for tax purposes, which creates a paper loss that offsets rental income. This tax benefit isn't modeled here but can significantly improve after-tax returns. Consult a tax professional.
Cap rate measures the property's intrinsic yield regardless of financing. Cash-on-cash measures your actual return on invested capital. If you're comparing properties, use cap rate. If you're evaluating your personal return, cash-on-cash is more relevant.
Estimate only. Results reflect your inputs and standard formulas. Double-check important decisions independently.