The Core Rental Property Metrics
Core rental property metrics and their targets
| Metric | Formula | What It Measures | Target Range |
|---|---|---|---|
| Gross Rental Yield | Annual Rent ÷ Purchase Price | Raw income potential | 6–12% |
| Cap Rate | NOI ÷ Purchase Price | Property’s income relative to price (all-cash) | 5–10% |
| Cash-on-Cash Return | Annual Cash Flow ÷ Cash Invested | Return on your actual cash investment | 6–12%+ |
| Net Operating Income (NOI) | Gross Rent − Vacancy − Operating Expenses | Operating profitability before debt service | Positive required |
| DSCR | NOI ÷ Annual Debt Service | Loan coverage ability | 1.25+ for financing |
| GRM | Purchase Price ÷ Annual Gross Rent | Quick valuation metric | Below 12 |
Cap rate measures the property’s return assuming all-cash purchase — useful for comparing properties independent of financing. Cash-on-cash measures the actual return on your invested capital with your specific mortgage terms. In 2025 with mortgage rates at 6.5–7.5%, cash-on-cash returns are often lower than cap rates because debt costs are high relative to income.
Inputting Expenses Accurately
Rental property expense inputs and typical ranges
| Expense Category | Typical % of Gross Rent | Notes |
|---|---|---|
| Vacancy | 5–10% | 8% is conservative standard (1 month/year) |
| Property management | 8–12% of collected rent | Skip if self-managing but budget time |
| Maintenance/repairs | 5–10% of gross rent | Age and condition dependent |
| Property taxes | 1–3% of value/year | Check county assessor for actual rate |
| Insurance | 0.5–1% of value/year | Landlord policy, not homeowners |
| Capital expenditures reserve | 5–10% of gross rent | Roof, HVAC, appliances over time |
The 50% Rule Quick Check
The 50% rule: operating expenses (not including debt service) typically consume 50% of gross rent. On a property generating $2,400/month: expected expenses = $1,200/month. Remaining for debt service and profit: $1,200. If your mortgage payment exceeds $1,200: negative cash flow. If under: positive. This quick check screens deals before full analysis.
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