How to analyze a rental property
A rental works when rent covers vacancy, operating costs and the loan payment, and leaves a return you are happy with. Here are the four numbers to check, how each is calculated and a full worked example.
FlipMetric guide · Reviewed 2026-11-10
What is buy and hold investing?
Buy and hold means buying a property to rent out for years rather than sell quickly. You earn in three ways: monthly cash flow, the loan being paid down by your tenants, and any rise in the property's value. Analysis focuses on the first one, because cash flow is what keeps you from feeding the property every month.
Which four numbers should you check?
| Metric | Formula | What it tells you |
|---|---|---|
| Cash flow | Rent − vacancy − operating costs − loan payment | Whether the property pays for itself |
| Cap rate | Net operating income ÷ price | The return before financing |
| Cash-on-cash return | Annual cash flow ÷ cash invested | What your own money earns |
| DSCR | Net operating income ÷ annual loan payments | Whether a lender sees enough cushion |
Net operating income (NOI) is rent minus vacancy and operating costs. Loan payments are not an operating cost.
A worked example
This rental was run through the FlipMetric engine with its default assumptions: 25% down, a 30-year loan at 6.75%, 5% vacancy, 5% maintenance, 5% capital expenses and 8% management.
| Input | Value |
|---|---|
| Purchase price | $200,000 |
| Closing costs | $5,000 |
| Rent | $1,900 a month |
| Property tax | $250 a month |
| Insurance | $120 a month |
| Result | Value |
|---|---|
| Gross annual rent | $22,800 |
| Vacancy | $1,140 |
| Operating costs | $8,544 |
| Net operating income | $13,116 |
| Annual loan payments | $11,675 |
| Annual cash flow | $1,441 (about $120 a month) |
| Cap rate | 6.56% |
| Cash-on-cash return | 2.62% on $55,000 invested |
| DSCR | 1.12 |
The verdict is Negotiate. The property pays for itself, but cash-on-cash is below the 8% default target and DSCR is below the 1.25 many lenders look for. A lower price, a larger down payment or higher rent would move it up.
What is a good cap rate?
It depends on the market and the property. Cap rates are useful for comparing similar properties in the same area, not as a universal pass mark. A useful check: if the cap rate is below your mortgage rate, borrowing reduces your return rather than adding to it.
How much should you budget for repairs and vacancy?
Use what similar rentals nearby actually experience. If you don't know, test several rates. FlipMetric's defaults (5% vacancy, 5% maintenance, 5% capital expenses) are starting points. Older houses, tenant turnover and long vacancies all push the real numbers higher, so run a pessimistic case before you commit.
How do local costs change the answer?
Property tax and insurance can decide whether a rental works. In the example, those two lines cost $4,440 a year. Pick a county in the calculator and FlipMetric fills in the county's effective tax rate from Census data and the state's average insurance premium from the NAIC. You can compare markets on the US markets page.
Common rental mistakes
- Using the seller's tax bill. A sale can trigger a reassessment.
- Leaving out maintenance and capital expenses. Roofs, water heaters and HVAC eventually need replacing.
- Assuming full occupancy. Every turnover costs rent, cleaning and repairs.
- Treating appreciation as income. Past price growth doesn't guarantee future growth.
Run your own numbers in the rental property calculator, or go straight to cash flow, cap rate or DSCR.
Questions people ask
Educational material from FlipMetric, not financial advice. Disclaimer.