Question 1

What is the cap rate for a rental property?

Accepted Answer

Cap rate = Net Operating Income / Property Value × 100%. NOI is annual rent minus all operating expenses (excluding mortgage). A cap rate of 6–8% is generally considered acceptable for residential rentals in most markets, though acceptable rates vary widely by location.

Question 2

What is cash-on-cash return?

Accepted Answer

Cash-on-cash return = annual pre-tax cash flow / total cash invested (down payment + closing costs). A 6–10% cash-on-cash return is generally considered a reasonable target for rental properties, though this depends heavily on your local market and leverage.

Question 3

What is the 1% rule for rental properties?

Accepted Answer

The 1% rule says monthly rent should be at least 1% of purchase price. A $200,000 property should generate $2,000/month rent. This quick filter screens for potentially cash-flowing properties, but doesn't account for local property taxes, insurance, or market conditions.

Question 4

What expenses should I budget for a rental property?

Accepted Answer

Budget: property taxes (1–3% of value/year), insurance (0.5–1%/year), maintenance (1–2%/year), property management (8–12% of rents), vacancy (5–10% of rents), and capital expenditures reserve (roof, HVAC, appliances — typically $100–200/month).

Question 5

Should I consult a real estate professional before investing?

Accepted Answer

Yes. A real estate agent familiar with investment properties, a CPA for tax implications, and a property attorney for the purchase contract are all valuable advisors. Real estate investing has significant legal, tax, and financial complexities beyond this calculator.

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