Rental property analysis glossary
The numbers every first-time landlord should understand, in plain English.
Net operating income (NOI)
Rent minus operating costs: property tax, insurance, HOA, vacancy, maintenance and management. It does not include your mortgage. NOI = rent − operating expenses
Cash flow
What's left each month after operating costs and the mortgage payment. Cash flow = NOI − mortgage payment
Cap rate
The yearly return if you paid all cash. Cap rate = annual NOI ÷ purchase price. Many beginners look for 6%+.
Cash-on-cash return
Yearly cash flow divided by the cash you put in. CoC = annual cash flow ÷ (down payment + closing costs). 8%+ is strong; under 4% is weak.
DSCR (debt service coverage ratio)
DSCR = monthly NOI ÷ monthly mortgage payment. Below 1.0 the rent can't cover the loan after expenses; lenders usually want 1.25+.
The 1% rule
A quick filter: monthly rent should be at least 1% of the price. A $250,000 home should rent for $2,500+. Rough screen, not a verdict.
Vacancy rate
The share of the year the unit sits empty. Budget at least 5% (about 2–3 weeks a year).
Maintenance / capex reserve
Money set aside for repairs and big replacements (roof, HVAC). 5–10% of rent is a common starting point.
Property management
Managers typically charge a percentage of rent. Budget it even if you self-manage, because your time has value.
Principal & interest (P&I)
Your loan payment: P&I = L·r ÷ (1 − (1+r)^−n), where L is the loan amount, r the monthly rate and n the number of payments.