Complete Rental Property Analysis Guide

Master the fundamentals of rental property investment analysis

Key Rental Property Metrics

Cap Rate

Capitalization rate measures property performance independent of financing. Higher cap rates indicate better value.

Net Operating Income / Property Value

Good ranges: 4-8% (varies by market)

Cash Flow

Monthly income after all expenses including mortgage payment. Positive cash flow is essential for sustainability.

Monthly Rent - Total Expenses

Target: $100+ per door minimum

Cash-on-Cash Return

Annual cash flow as percentage of cash invested. Measures return on actual money invested.

Annual Cash Flow / Cash Invested

Target: 8-12% annually

1% Rule

Quick screening tool: monthly rent should equal 1% of purchase price for good cash flow potential.

Monthly Rent / Purchase Price ≥ 1%

Note: Harder to find in expensive markets

Understanding Operating Expenses

Fixed Expenses

• Property taxes
• Insurance
• HOA fees
• Property management

Variable Expenses

• Maintenance & repairs
• Vacancy allowance
• Utilities (if paid)
• Marketing/advertising

Rule of Thumb

Budget 45-55% of rent for expenses:

• 5-8% vacancy
• 5-10% maintenance
• 8-12% property mgmt
• Varies by property

Our Rental Property Calculator Features

Complete Analysis

Calculate cap rate, cash flow, cash-on-cash return, and total ROI with detailed breakdowns

Advanced Analysis

Sensitivity analysis, Monte Carlo simulation, and scenario comparison tools

Professional Tools

5-year projections, investment rule checks, and visual charts

🚀 Advanced Analysis Features

Take your rental property analysis to the next level with professional-grade tools

Sensitivity Analysis

See how changes in key variables affect your returns

What it does:

• Tests purchase price variations (±20%)
• Analyzes rent fluctuations (±20%)
• Evaluates interest rate changes (±2%)
• Assesses expense variations (±30%)

How to use:

1. Click "Show Advanced" button
2. Go to "Sensitivity Analysis" tab
3. Select variables to analyze
4. Click "Run Sensitivity Analysis"
5. Review tornado diagram results

Monte Carlo Simulation

Run thousands of scenarios to understand probability of returns

What it provides:

• Mean expected ROI
• Success probability (positive returns)
• 95% confidence intervals
• Risk level assessment
• Distribution histogram

Configuration options:

• 1,000 to 10,000 scenarios
• ±10%, ±20%, or ±30% variation
• Normal distribution modeling
• Visual probability charts

Scenario Comparison

Compare different market conditions side by side

Conservative

• +1% interest rate
• -10% rental income
• 10% vacancy rate

Base Case

• Current inputs
• Market conditions
• Standard assumptions

Optimistic

• -1% interest rate
• +10% rental income
• 3% vacancy rate

Pro Tip

Use these advanced features to stress-test your investment assumptions and understand the full range of potential outcomes before committing capital.

How to Analyze a Rental Property

Gather Property Information

Start by collecting all essential property details:

• Purchase price or asking price
• Current or estimated monthly rent
• Annual property taxes
• Insurance costs (homeowner's or landlord policy)
• HOA fees (if applicable)
• Any immediate repair or renovation costs

Estimate Operating Expenses

Budget for all ongoing operational costs:

• Maintenance & repairs: 5-10% of rent
• Vacancy allowance: 5-8% of rent
• Property management: 8-12% if using a company
• Utilities: Only if landlord pays
• Legal & accounting: $200-500 annually

Input Financing Details

Enter your loan information and investment capital:

• Down payment: Typically 20-25% for investment properties
• Interest rate: Check current rates for investment loans
• Loan term: Usually 30 years for rentals
• Closing costs: 2-3% of purchase price

Review Basic Results

Analyze the fundamental metrics:

• Monthly cash flow: Should be positive
• Cap rate: Compare to market averages
• Cash-on-cash return: Target 8-12%
• 1% rule: Rent ≥ 1% of purchase price
• 50% rule: Expenses ≤ 50% of rent

Use Advanced Analysis (Optional)

For professional-level analysis, click "Show Advanced" and explore:

• Sensitivity Analysis: Test how changes in key variables affect returns
• Monte Carlo Simulation: Run thousands of scenarios to understand risk
• Scenario Comparison: Compare conservative, base, and optimistic cases
• Visual Charts: See tornado diagrams and probability distributions

Make Your Investment Decision

Consider all factors before proceeding:

• Does the property meet your return requirements?
• Are you comfortable with the risk level shown in Monte Carlo?
• How does it perform in conservative scenarios?
• Does the deal still work if expenses are higher than expected?

Remember

A good rental property analysis is conservative. It's better to underestimate returns and be pleasantly surprised than to overestimate and face cash flow problems.

Common Rental Property Analysis Mistakes

Using optimistic rent estimates

Always research actual market rents using comparable properties and rental websites.

Underestimating maintenance and repairs

Budget at least 5-10% of rent for maintenance. Older properties need more.

Ignoring vacancy costs

Even the best properties have turnover. Budget 5-8% for vacancy and turnover costs.

Forgetting about capital expenses

Major items like roofs, HVAC, and flooring need periodic replacement. Budget accordingly.

Analyze Any Rental Property Deal

Example Analysis

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