Most real estate deals look good in your head. The numbers tell a different story rental property cash flow calculator. Here is a systematic framework for analyzing any rental property before making an offer.
Step 1: Establish the ARV and Rent Estimate
Pull at least 5 comparable sales within 1 mile and 6 months. Pull at least 5 rental comps on Zillow, Rentometer, and Craigslist. Your rental estimate should be conservative — use the median or low end of comps.
Step 2: Calculate Gross Rent Multiplier (GRM) cap rate calculator
GRM = Purchase Price / Annu real estate ROI calculatoral Gross Rent. A $300,000 property at $2,000/month gross rent has a GRM of 12.5. In most markets, GRMs above 15 signal overpricing for buy-and-hold investors.
Step 3: Apply the 50% Rule
Assume 50% of gross rent covers operating expenses (not including mortgage). The remaining 50% pays the mortgage and provides cash flow. If rent minus 50% minus mortgage payment is negative, the deal likely needs renegotiating.
Step 4: Run the Full Analysis
Model out 5 years of ownership: Year 1 cash flow, equity paydown, assumed 3% annual appreciation, and exit costs. Calculate your IRR (internal rate of return). Target 12%+ IRR for a good leveraged deal.
Never fall in love with a property. The numbers decide.