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Rental Property Analysis
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The net income from a property after all operating expenses and mortgage payments. Positive cash flow means the property generates more income than expenses.
Formula: (Gross Income - Operating Expenses - Debt Service)
The rate of return based on the property's net operating income (NOI) and purchase price. Helps compare different investment opportunities regardless of financing.
Formula: (Net Operating Income / Purchase Price) × 100%
The annual return on the actual cash invested, accounting for financing. Shows how efficiently your invested cash is being used.
Formula: (Annual Cash Flow / Total Cash Invested) × 100%
A quick way to compare properties based on their price relative to gross rental income. Lower GRM often indicates better value.
Formula: Property Price / Annual Gross Income
Measures the property's ability to cover its debt payments. Lenders typically require DCR above 1.25.
Formula: Net Operating Income / Annual Debt Service
Total return including cash flow, appreciation, and equity build-up over the holding period. Shows overall profitability.
Formula: (Total Profit / Total Investment) × 100%
A good cash-on-cash return typically ranges from 8-12% depending on the market and property type. However, this varies based on:
• Property location (Class A, B, or C neighborhoods)
• Risk tolerance (higher returns usually mean higher risk)
• Investment strategy (cash flow vs. appreciation focus)
• Current interest rates and market conditions
Many experienced investors target 8-10% for stable, lower-risk properties and 12-15% for value-add opportunities.
Property management fees typically range from 8-12% of the monthly rent. Additional costs may include:
• Leasing fees (50-100% of one month's rent for new tenants)
• Maintenance markup (10-20% on repairs)
• Annual fees or minimum monthly fees
For a $2,500/month rental, expect to pay $200-300/month for full-service management. Self-managing can save this cost but requires significant time and expertise.
Don't forget these often-overlooked expenses:
• Vacancy reserves (5-10% of rent)
• Maintenance reserves (10-15% of rent)
• Capital expenditures (roof, HVAC, appliances)
• Property taxes and insurance
• HOA fees and special assessments
• Utilities (if not paid by tenants)
• Professional services (accounting, legal)
• Marketing and advertising
• Travel and property inspections
The 1% rule states that monthly rent should be at least 1% of the purchase price. For example:
Purchase Price: $300,000
Target Monthly Rent: $3,000 (1% of $300,000)
This is a quick screening tool, not a guarantee of profitability. In today's markets, many investors use 0.8-1.2% as their range. Properties meeting the 1% rule are more likely to cash flow positively.