Money
Rental Property Calculator
Whether a rental property pays off, before you buy it
Use this rental property calculator to see the gross and net yield, the cap rate and the cash flow of a home you rent out: enter the price, closing costs, rent, yearly expenses and vacancy.
The key idea
A rental's return is not the gross yield: it is the net
A $300,000 home rented for $2,200 a month has an 8.8% gross yield. With 3% closing costs, $3,600 of property tax, $1,500 of insurance, $2,400 of other expenses and one empty month, the cap rate drops to 5.57% and the net yield to 5.4%. That is over three points less, before the mortgage and income taxes.
How it is calculated
Gross yield = annual rent / purchase price
Net operating income (NOI) = rent collected − property tax − insurance − other expenses
Cap rate = NOI / purchase price
Net yield = NOI / (price + closing costs)
Monthly cash flow = NOI / 12 − mortgage payment
Rent collected is the monthly rent times the months the home is rented. Cap rate leaves out financing, so you can compare properties no matter how you pay for them. Add your mortgage payment to see the cash flow that is left for you.
The result does not include income taxes, depreciation or the principal you pay down on the loan, which change the final return.
Worked example
A $300,000 home with 3% closing costs, rented for $2,200 a month, with $3,600 of property tax, $1,500 of insurance, $2,400 of other expenses and one vacant month: rent collected $24,200, NOI $16,700, gross yield 8.8%, cap rate 5.57% and net yield of $16,700 / $309,000 = 5.4%. Cash flow before any mortgage: $1,391.67 a month.
Typical cases
Cap rate and cash flow by rent on a $300,000 rental
What a $300,000 property yields at common rents, with 3% closing costs, one month vacant a year, $3,600 property tax, $1,500 insurance and $2,400 maintenance.
| Monthly rent | Gross yield | Cap rate | Cash flow a month, no mortgage |
|---|---|---|---|
| $1,500 | 6.00% | 3.00% | $750.00 |
| $1,750 | 7.00% | 3.92% | $979.17 |
| $2,000 | 8.00% | 4.83% | $1,208.33 |
| $2,250 | 9.00% | 5.75% | $1,437.50 |
| $2,500 | 10.00% | 6.67% | $1,666.67 |
| $2,750 | 11.00% | 7.58% | $1,895.83 |
| $3,000 | 12.00% | 8.50% | $2,125.00 |
| $3,500 | 14.00% | 10.33% | $2,583.33 |
Save or share this table as an image Common questions
Frequently asked questions
What is the gross rental yield?
It is one year of rent divided by the purchase price. A $300,000 home rented for $2,200 a month gives an 8.8% gross yield. It works as a first filter, but it ignores expenses.
What is a cap rate?
It is the net operating income divided by the purchase price. With $16,700 of NOI on a $300,000 home, the cap rate is 5.57%. It leaves out the mortgage, so it compares properties on equal terms.
What is the difference between gross and net yield?
Net yield subtracts yearly expenses and vacant months and divides by the total cost, closing costs included. It is the closest to what you really earn before financing and taxes.
What is a good cap rate?
It depends on the area and the risk: it tends to be lower in expensive, in-demand neighborhoods and higher in cheaper or riskier ones. Compare it with a low-risk investment and with your mortgage rate. This is not financial advice.
What expenses do people often forget?
Vacant months, repairs and tenants who do not pay. Also property management, HOA fees and rising property tax and insurance. Get real quotes for your property before you decide.
Is rental income taxed?
Yes, rental income is generally taxable, and some expenses can be deducted. This calculator does not include taxes: check your case with a tax professional.
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