Rental Income Calculator
Frequently Asked Questions
What is a good cap rate for a rental property?
A cap rate of 5% to 8% is generally considered good for residential rentals in most US markets. However, cap rates vary significantly by location — high-demand cities like San Francisco often show 3% to 4%, while Midwest markets can offer 7% to 10%. Always compare cap rates against local market averages rather than a universal target.
What is the difference between cash flow and NOI?
Net Operating Income (NOI) is rental income minus operating expenses, excluding your mortgage payment. Cash flow is NOI minus your monthly mortgage payment. NOI is used to evaluate the property's earning power regardless of financing. Cash flow shows how much money actually enters or leaves your pocket each month after all bills are paid.
How much of gross rent should I budget for expenses?
Most experienced landlords use the 50% rule as a quick estimate: budget 50% of gross rent for all operating expenses excluding your mortgage. On a $2,200 rent, that means roughly $1,100 per month for taxes, insurance, maintenance, management, and CapEx reserves. Actual expenses vary based on property age, location, and management style.
What vacancy rate should I use in my calculation?
Use 5% vacancy for most US suburban rental markets, which equals roughly one month vacant every 20 months. Use 3% for high-demand urban areas with low inventory. Budget 8% to 10% for older properties, rural markets, or areas with declining population. Check local rental market data from Zillow or CoStar for the most accurate estimate for your area.
Should I include the mortgage payment in my rental income analysis?
Yes, but separately. The cap rate calculation intentionally excludes mortgage payments to enable apples-to-apples property comparisons. For your personal investment decision, always calculate cash flow with the mortgage included. A property with a great cap rate can still produce negative cash flow if it is heavily financed with a high interest rate loan.
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