What the calculator computes
From price, financing, rent, and expenses it returns:
- Cap rate — net operating income ÷ price (ignores your loan)
- Monthly and annual cash flow — after the mortgage
- Cash-on-cash return — annual cash flow ÷ total cash invested
- 1% rule check and gross rent multiplier
Build the expense number honestly
“Operating expenses” here means everything except the mortgage:
- Property taxes (use the reassessed value, not the seller’s old bill)
- Insurance (higher for rentals than owner-occupied)
- Property management — budget it even if you self-manage
- Repairs and maintenance (~1% of value per year as a start)
- Capital expenditure reserve (another ~1%)
- Vacancy allowance (5–8% of rent in most markets)
- HOA, lawn, snow, pest, utilities you cover
A deal that cash-flows on a thin expense estimate often bleeds once these are realistic.
The four returns of a rental
Cash-on-cash captures only the first year’s cash. Rentals also build wealth through:
- Principal paydown — tenants retire your loan
- Appreciation — historically modest, ~1% real per year, but leveraged
- Tax benefits — depreciation shelters some income
- Rent growth — income rises over time while the mortgage is fixed
Screen on cash flow, but judge the deal on total return. Then pressure-test: raise vacancy, add a capex line, bump the rate, and see if it still works.