What is a good cash-on-cash return?

Many buy-and-hold investors target 8% or more, though expectations vary by market. In high-appreciation metros investors often accept lower cash returns in exchange for equity growth.

Why is the mortgage excluded from NOI?

NOI measures the property's performance, not the buyer's financing. Two investors paying different rates on the same building have the same NOI but very different cash flow.

Is the 1% rule still realistic?

It is difficult to hit in expensive coastal markets and easier in the Midwest and South. Treat it as a screening filter rather than a requirement.

How much should I reserve for CapEx?

Five to ten percent of gross rent is common. Older properties, or ones with an aging roof or HVAC system, justify the higher end.

What DSCR do lenders require?

Most commercial and DSCR loan programs want at least 1.20–1.25, meaning NOI exceeds the debt payment by 20–25%.

Investment Analysis

Rental ROI / Cash Flow Calculator

Monthly cash flow, cash-on-cash return and cap rate.

Inputs

Given

Purchase price

Down payment

Interest rate

Loan term

yrs

Closing costs

Upfront rehab

Monthly rent

Other monthly income

Vacancy

Property taxes

$/yr

Insurance

$/yr

HOA dues

$/mo

Maintenance

CapEx reserve

Management

Results

Computed

Monthly cash flow

$90.47

$1,086 per year on $81,000 invested

Cash-on-cash return1.34%

Cap rate6.35%

Net operating income$19,049

Effective gross income$29,640

Operating expenses$10,591

Annual debt service$17,963

Loan amount$225,000

Total cash invested$81,000

DSCR1.06

1% rule0.87% of price

Gross rent multiplier9.6

Most commercial lenders want a DSCR of 1.25 or higher. Below that, financing may require a larger down payment.

$90/mo · 1.3% CoC · 6.3% cap

How this is calculated

Rental analysis works from the top of the income statement down. Gross scheduled rent is reduced by vacancy to give effective gross income, then operating expenses are subtracted to produce net operating income. Debt service comes out last:

EGI = (rent + other income) × 12 − vacancy loss

NOI = EGI − operating expenses

cash flow = NOI − annual debt service

Critically, NOI excludes the mortgage. That is what allows cap rate to compare properties independently of how each buyer financed them:

cap rate = NOI ÷ purchase price × 100

cash-on-cash = annual cash flow ÷ total cash invested × 100

DSCR = NOI ÷ annual debt service

The 1% rule is a quick screen, not an analysis: monthly rent at or above 1% of the purchase price suggests the deal is worth underwriting properly. Gross rent multiplier, price divided by annual gross rent, works the same way as a fast comparison between listings.

Maintenance, capital expenditure and management are entered as percentages of rent because they scale with the property rather than being fixed bills. Skipping the CapEx reserve is the most common reason a rental that looked profitable on paper loses money over a full ownership cycle.

Worked example

A $420,000 duplex unit renting at $2,300

Purchase $420,000 with 20% down: $84,000 down plus ≈ $8,000 closing = $92,000 cash in.
Rent $2,300/mo; vacancy 4%, taxes $350/mo, insurance $140/mo, maintenance 8% and management 8% leave NOI ≈ $1,480/mo.
Debt service on $336,000 at 5.75%/25 yr ≈ $2,100/mo → cash flow ≈ −$620/mo.
Cash-on-cash ≈ −8.1%: at these rates the deal only works at a lower price, a larger down payment, or higher rent.
The 1% rule flags it too: rent is 0.55% of price, well under 1%.

Common mistakes

Undercounting expenses
A common pro forma shows only taxes, insurance and the mortgage. Vacancy, maintenance, management and capital reserves typically consume 35–50% of gross rent — leave them out and every deal looks profitable.
Confusing cash flow with return
Principal paydown, appreciation and tax effects all add return beyond cash flow — but none of them pay the mortgage in a bad month. Judge survival on cash flow and wealth on total return.
Using market rent without evidence
Listings show asking rents, not signed rents. Check comparable signed leases or local vacancy data; a 5% rent error can flip a deal from positive to negative.