What is a cap rate and why does financing not change it?

Cap rate is net operating income divided by the purchase price. It deliberately ignores your mortgage, because it measures the property rather than your deal. That is what makes it comparable between two buildings financed differently.

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

Cap rate measures the property and ignores debt. Cash-on-cash measures your deal: annual cash flow after the mortgage, divided by the cash you actually put in. Leverage usually pushes cash-on-cash above or below the cap rate.

Is a 40 percent expense ratio realistic?

For most single properties, yes. Tax, insurance, repairs, management and vacancy typically consume 35 to 50 percent of gross rent. Anyone modelling 10 percent has forgotten vacancy and capital repairs, which is the most common way a rental analysis goes wrong.

What does DSCR mean and what number do I need?

Debt service coverage is net operating income divided by annual mortgage payments. Below 1.0 the property does not cover its own debt. Most lenders want 1.20 or better, so the 1.09 on the default example would struggle to get financed.

Why is my cash flow so much smaller than rent minus mortgage?

Because rent minus mortgage is not cash flow. Operating costs come out first. On the default example, 2,600 dollars of rent produces 18,720 dollars of net operating income a year, and the mortgage consumes almost all of it.

Does the cash needed figure include everything?

It includes the down payment and closing costs, which is 78,400 dollars on the default example. It does not include repairs before first letting or a reserve fund, and you should hold several months of expenses on top.

How do I make a weak deal work?

Only three levers matter: a lower price, a higher rent, or a larger down payment. Try each one here and watch cap rate and DSCR separately. A bigger down payment fixes DSCR and cash flow but never improves the cap rate.

Rental Property Calculator

Calculate rental property cash flow, ROI and cap rate online free — analyse buy-to-let investments. Runs in your browser — nothing uploaded.

100% Private — Runs entirely in browserInstant calculation & resultFree, no sign-up

Rental property cash flow & Cap Rate

Purchase price ($)Monthly rent expected ($)Down payment (%)Mortgage rate (%)Loan term (yrs)Operating expenses (% of rent) (%)

Monthly net cash flow$73.58
Cap Rate (NOI / Price)6.24%
Cash-on-Cash Return1.01%
Net Operating Income (NOI)$21,840
Annual debt service$20,957

Calculated in your browser — nothing you type is sent anywhere.

Four numbers decide a rental, not one

A rental purchase cannot be judged on monthly cash flow alone. You need the cap rate to compare the property against others, cash-on-cash to judge your particular deal, and the debt service coverage ratio to know whether a lender will even fund it. This calculator shows all four at once, from the same inputs.

On the default example, a 280,000 dollar property renting at 2,600 dollars a month with a 40 percent expense ratio, net operating income is 18,720 dollars a year, a cap rate of 6.69 percent. With 25 percent down at 7.25 percent over thirty years, the mortgage takes almost all of that: monthly cash flow is about 127 dollars and the debt service coverage ratio is 1.09. You would need 78,400 dollars in cash to close.

Why the expense ratio is the input that matters most

Every optimistic rental analysis has the same error: operating costs set far too low. Tax, insurance, repairs, management and vacancy genuinely consume 35 to 50 percent of gross rent over a full ownership cycle, and the years with no repairs are simply the years before the repairs.

Net operating income: annual rent minus operating costs, before any mortgage at all.
Cap rate: a property-level measure, so changing your down payment leaves it untouched.
Cash-on-cash: your return on the money you actually invested, mortgage included.
DSCR below 1.20: expect a lender to decline, or to want more money down.

Use it to compare, not to justify

The most useful thing you can do here is run the same property at a lower price and a higher expense ratio, and see whether it still works. A deal that only survives optimistic assumptions is not a deal. Nothing you type leaves your browser, so use your real rent and your real repair history rather than the numbers the listing suggests.

Frequently Asked Questions

What is a cap rate and why does financing not change it?
Cap rate is net operating income divided by the purchase price. It deliberately ignores your mortgage, because it measures the property rather than your deal. That is what makes it comparable between two buildings financed differently.
What is the difference between cap rate and cash-on-cash return?
Cap rate measures the property and ignores debt. Cash-on-cash measures your deal: annual cash flow after the mortgage, divided by the cash you actually put in. Leverage usually pushes cash-on-cash above or below the cap rate.
Is a 40 percent expense ratio realistic?
For most single properties, yes. Tax, insurance, repairs, management and vacancy typically consume 35 to 50 percent of gross rent. Anyone modelling 10 percent has forgotten vacancy and capital repairs, which is the most common way a rental analysis goes wrong.
What does DSCR mean and what number do I need?
Debt service coverage is net operating income divided by annual mortgage payments. Below 1.0 the property does not cover its own debt. Most lenders want 1.20 or better, so the 1.09 on the default example would struggle to get financed.
Why is my cash flow so much smaller than rent minus mortgage?
Because rent minus mortgage is not cash flow. Operating costs come out first. On the default example, 2,600 dollars of rent produces 18,720 dollars of net operating income a year, and the mortgage consumes almost all of it.
Does the cash needed figure include everything?
It includes the down payment and closing costs, which is 78,400 dollars on the default example. It does not include repairs before first letting or a reserve fund, and you should hold several months of expenses on top.
How do I make a weak deal work?
Only three levers matter: a lower price, a higher rent, or a larger down payment. Try each one here and watch cap rate and DSCR separately. A bigger down payment fixes DSCR and cash flow but never improves the cap rate.