Understanding the rental property calculator
A rental property is judged by its cash flow and its returns. Cash flow is what's left each month after the mortgage, operating expenses, and a vacancy allowance. The capitalization (cap) rate divides annual net operating income by the purchase price to compare properties independent of financing, while cash-on-cash return measures annual cash flow against the actual cash you invested usually the down payment.
Positive cash flow is the safety margin that lets a rental survive vacancies and repairs; negative cash flow means you subsidize the property every month and bet entirely on appreciation. Conservative investors stress-test the numbers with higher vacancy and expense assumptions than a listing suggests, because real-world costs maintenance, management, and turnover almost always run higher than first estimates.
Results are estimates for education only and are not financial advice.