Rental property calculator

How the calculator works

It starts from the gross rent for a year and takes off an allowance for vacant months. What is left is the effective gross income: the rent you actually expect to collect.

Then it takes off the operating expenses: property management (charged on the rent collected), maintenance and capital expenditures (set aside as a share of the gross rent), property tax, insurance, the HOA fee and any other monthly costs you pay. Income minus operating expenses is the net operating income, or NOI.

Last, it takes off the mortgage. The monthly principal and interest is the standard fixed-rate payment for the amount you borrow, the rate and the term. NOI minus a year of those payments is what the home puts in your pocket each year, and a twelfth of that is the monthly figure.

What each result means

Each figure answers a different question, so read them together rather than chasing one.

• Monthly cash flow: what is left each month after every expense and the mortgage. Negative means you pay in.
• Cap rate: NOI divided by the price. What the property earns before financing, so you can compare homes however they are financed.
• Cash-on-cash return: a year's cash flow divided by the cash you put in (down payment plus closing costs).
• DSCR: NOI divided by a year of mortgage payments. Above one, the rent covers the mortgage; below one, it doesn't.
• Gross rent multiplier: the price divided by a year of gross rent. A quick screen; lower means more rent per dollar of price.
• The one percent rule: whether the monthly rent is at least one percent of the price. A rough first filter, not a verdict.
• Break-even rent: the monthly rent at which the cash flow is exactly zero with your other inputs.
• Five-year projection: rent, costs and the home's value grown at the rates you set, the mortgage paid down, and the equity and total return at the end of each year.

Where the auto-filled numbers come from

When you enter an address or a Zillow link, the calculator looks the home up and fills four inputs: the price (the list price, the sold price, or Zillow's Zestimate when the home isn't listed), the monthly rent (Zillow's rent Zestimate), the property tax (the latest year in the home's tax history; failing that, the annual tax amount on the listing, or the assessed value times the local tax rate) and the HOA fee. Each one is marked as filled from the property, and you can change any of them.

The Zestimate and the rent Zestimate are Zillow's estimates, not appraisals or offers. The interest rate is an assumption, not a quoted rate, and insurance is an estimate as a share of the price. Replace them with your own numbers when you have them.

What the calculator leaves out

A rental's real return also depends on things no general calculator can know about your situation:

• Income tax on the profit, and the depreciation deduction that can offset it
• Selling costs when you exit: agent commission, transfer taxes and repairs to list the home
• One-off surprises bigger than the capital expenditure allowance, such as a roof or a sewer line
• Turnover between tenants: cleaning, painting and the weeks spent finding the next renter
• Licences, inspections and registration fees that some cities charge landlords
• Your own time, if you manage the home yourself instead of paying a manager

A short checklist before you make an offer

Get a quote for landlord insurance on the actual address. Ask the county how the tax bill could change after a sale, because many places reassess at the purchase price. Read the HOA's rules on renting, since some associations limit or forbid it. Compare the rent estimate with homes listed for rent nearby that match the bedrooms, size and condition. Book an inspection before you rely on the maintenance allowance.

Then put the numbers you collected back into this calculator. The figures that come from your own research replace the defaults, and the result moves from an illustration toward an estimate you can defend.