Question 1

What is the 1% rule in rental property investing?

Accepted Answer

The 1% rule states that monthly rent should be at least 1% of the property purchase price. For a $300,000 property, you should charge at least $3,000/month rent. This rule provides a quick screening test for potential investments, though you should also analyze actual expenses and cash flow.

Question 2

What is cap rate for rental properties?

Accepted Answer

Cap rate (capitalization rate) measures rental property return without financing. Formula: NOI divided by property value. Example: $12,000 NOI on $200,000 property = 6% cap rate. Higher cap rates indicate higher returns but potentially higher risk. Most residential properties have 4-8% cap rates.

Question 3

What is cash-on-cash return?

Accepted Answer

Cash-on-cash return measures annual cash flow relative to cash invested. Formula: Annual pre-tax cash flow divided by total cash invested. Example: $8,000 cash flow on $50,000 down payment = 16% cash-on-cash. This metric accounts for financing and shows actual return on your invested capital.

Question 4

What is the 50% rule for operating expenses?

Accepted Answer

The 50% rule estimates that operating expenses (excluding mortgage) equal about 50% of gross rental income. This includes taxes, insurance, maintenance, property management, and vacancy. Quick estimate: $2,000 rent - $1,000 expenses - mortgage payment = cash flow. Use for initial screening only.

Question 5

How much down payment for rental property?

Accepted Answer

Investment property down payments typically require 20-25%, compared to 3-5% for primary residences. Lenders see higher risk. Conventional loans: 15-25% down. Portfolio loans: 20-30% down. Better rates and terms with 25%+ down. Calculate if lower down payment reduces cash-on-cash return too much.

Rental Property ROI Calculator

Property Details

Monthly Analysis

Investment Metrics

10-Year Projection

Positive Cash Flow

Investment Rules

Operating Expenses