How to Analyze Rental Property Investments
Real estate investors use three key metrics to evaluate deals: Cap Rate shows property performance independent of financing, Cash-on-Cash Return measures your actual return on invested capital, and the 1% Rule is a quick screening tool for cash flow potential.
Key Investment Metrics
Cap Rate
NOI ÷ Property Value × 100. Shows the return you'd earn if paying all cash.
Cash-on-Cash Return
Annual Cash Flow ÷ Cash Invested × 100. Your actual return after mortgage.
1% Rule
Monthly Rent ≥ 1% of Purchase Price. Quick screening for cash flow potential.
Net Operating Income
Gross Rent - Operating Expenses. Foundation for Cap Rate calculation.