How to run the numbers on a rental property before you buy

Most rental deals fail on four numbers, and you can check all four before you call the agent. Each one answers a question the others do not, and each one stops being useful at a point worth knowing.

Cap rate comes first. It is the yearly operating income measured against the price, as if you paid cash. It leaves the mortgage out on purpose, so two buyers with different loans get the same cap rate on the same building, which makes it the one number you can compare across properties. Run a price and a rent through the free cap rate calculator and you have your first filter. What it will not tell you is anything about your loan.

Cash flow is next, roughly. The fast version is the 50% rule: assume expenses take half the rent before the mortgage, and see what is left to cover the loan. It is a screen, not a budget. A property that cannot clear the 50% rule rarely clears the detailed version either.

Break-even rent is the loan question the cap rate skipped: how far the rent can fall before the property stops covering its mortgage and its costs. A property that only works at today's rent has no room in it. The free break-even rent calculator gives you that floor.

Last is the cost of a vacancy. The three numbers above assume the unit stays full. An empty month is not only the rent you lose, it is the rent you lose while the fixed costs keep running. The free vacancy calculator puts a figure on that month. It leaves the mortgage out of the figure on purpose: the loan gets paid whether the unit is full or empty, so it is not part of what the vacancy itself costs you.

None of the four is the answer alone. The cap rate screens, the 50% rule shows whether the cash flow works at all, break-even rent tests the loan, and vacancy measures the risk. Trusting one number at one rent is where it goes wrong. A property that passes every test at today's rent can still fail the first time rent softens or a tenant leaves, so what you are after is not the base case but the range.

That is where a single calculator runs out. Running one property across a base case, a bad year and a good one, with capital expenses kept apart from repairs and the after-repair value in view, is a spreadsheet job. It is what the Rental Property Analyzer does: one property in depth, the three scenarios side by side. The free calculators are the quick filter. This is the version you use once a property is worth a closer look.