Rental Income Calculator
Cap Rate, Cash Flow & ROI 2026

Cap Rate = Net Operating Income (NOI) ÷ Property Value × 100. NOI = Annual Gross Rent × (1 − Vacancy Rate) − Operating Expenses. Operating expenses include property tax, insurance, maintenance, property management fees, and utilities (if landlord-paid) — but NOT mortgage payments. Example: $24,000 annual rent, 5% vacancy, $8,000 expenses, $300,000 property value → NOI = $22,800 − $8,000 = $14,800 → Cap Rate = 14,800 / 300,000 = 4.93%. Cap rate is a property metric independent of financing.

It depends on the market. Nationally, 4–6% cap rates are typical for stabilized residential rentals in 2026. High-cost coastal markets (NYC, LA, SF) often yield 2–4% cap rates — investors accept lower yields for appreciation. Secondary and Sun Belt markets commonly see 5–8%. Commercial properties and multifamily in tertiary markets can hit 7–10%+. A 'good' cap rate should exceed your break-even rate: if you can earn 5% in Treasuries risk-free, a 4% cap rate rental may not pencil without appreciation upside.

Cash on cash (CoC) return measures your actual cash yield on the cash you invested — it includes your mortgage payments. Formula: CoC = Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100. Total cash invested = down payment + closing costs + initial repairs. Cap rate ignores financing; cash on cash reflects it. Example: same $300K property with 25% down ($75K), 7% mortgage on $225K → annual P&I ≈ $17,964. NOI $14,800 − debt service $17,964 = −$3,164 cash flow. CoC = −4.2% despite a 4.93% cap rate. Leverage cuts both ways.

Monthly Cash Flow = (Annual Gross Rent × (1 − Vacancy Rate) − Annual Operating Expenses − Annual Debt Service) ÷ 12. Operating expenses typically include: property tax (1–2% of value/year), insurance (0.5–1%), maintenance and repairs (1% of value), property management (8–10% of collected rent), and vacancy/credit loss (5–8%). The 50% rule of thumb: expect 50% of gross rent to go to expenses, leaving the other 50% for debt service and profit. If 50% of gross rent doesn't cover your mortgage + profit target, the deal may not work.

Most investors target 6–10% cash on cash return in 2026. Under 5% is generally considered low unless the property is in a strong appreciation market. Above 10% is excellent but often signals higher risk (lower-quality tenant pool, deferred maintenance, or an emerging market). The benchmark varies by investor: some BRRRR (Buy, Rehab, Rent, Refinance, Repeat) investors target infinite CoC after a full cash-out refinance. Conservative passive investors often accept 5–7% CoC for turnkey properties in A-class neighborhoods.

GRM = Property Value ÷ Annual Gross Rent. It's a quick filter before running full underwriting. Example: $300K property with $24K annual rent → GRM = 12.5. Lower GRM = better income relative to price. Markets with GRM under 10 are generally landlord-favorable; GRM above 20 often signals speculation over income. GRM does NOT account for expenses, financing, or vacancy — use it only as a first-pass screen. Cap rate and cash on cash return are more rigorous for comparing deals.

Include all operating expenses: property taxes (1–2% of value/year), landlord insurance (0.5–1%), maintenance and repairs (1% of value, higher for older properties), property management (8–10% of collected rent if using a manager), vacancy allowance (5–8% of gross rent), CapEx reserve (1–2% of value for roof, HVAC, appliances), HOA (if applicable), lawn/snow/utilities (landlord-paid). Do NOT include mortgage principal and interest when calculating cap rate or NOI — they're financing items, not property expenses. Include them when calculating cash-on-cash return and DSCR.

Debt Service Coverage Ratio = Net Operating Income ÷ Annual Debt Service. It measures whether the property's income covers the mortgage payments. DSCR of 1.0 = break-even; NOI exactly covers debt. Most lenders require DSCR of 1.20–1.25 (income 20–25% above debt payments) for investment property loans. Example: NOI = $18,000, annual P&I = $15,000 → DSCR = 1.20, which barely meets most lender minimums. DSCR loans (no personal income documentation) have become popular for rental investors — they underwrite the property's income, not yours.