Rental Property Analysis for Investors

Rental property analysis comes down to three numbers. Learn these and you can evaluate any deal in five minutes.

Cash flow is what is left after every expense is paid. Monthly rent minus mortgage payment, taxes, insurance, property management, vacancy allowance, maintenance reserve, and capital expenditure reserve. If the number is positive, the property cash flows. If it is negative, you are writing a check every month to own it.

Cap rate is Net Operating Income divided by purchase price. NOI is your annual rental income minus operating expenses, not including the mortgage. A property that generates $12,000 in NOI on a $150,000 purchase has an 8% cap rate. Cap rate lets you compare properties regardless of financing. Higher cap rates mean higher returns relative to price. Most investor-grade rentals fall between 6% and 10%.

Cash-on-cash return is annual cash flow divided by total cash invested. If you put $30,000 into a property and it produces $3,600 in annual cash flow, your cash-on-cash return is 12%. This metric tells you how hard your actual dollars are working. It accounts for leverage, which cap rate does not.

Good numbers depend on your market. In the Midwest, you can find 8-10% cap rates and 12-15% cash-on-cash returns. In coastal markets, cap rates of 4-5% are common. Know your market benchmarks before you evaluate deals.

FlipMantis calculates all three metrics in the underwriting tool. Plug in the property details and financing terms, and the platform shows you cash flow, cap rate, and cash-on-cash return side by side.

The number one mistake new rental investors make is underestimating expenses. They see $1,200 in rent and a $750 mortgage and think they are making $450 per month. They are not. Not even close.

Property taxes are public record. Look them up. But check if the assessed value will change after purchase. Many counties reassess when a property sells, and your tax bill could jump 20% or more. Use the post-purchase estimate, not the current bill.

Insurance for rental properties costs more than owner-occupied. Get an actual quote. Budget $100 to $200 per month depending on the property and location. Flood zones, older roofs, and certain construction types cost more.

Property management runs 8% to 10% of collected rent. Even if you self-manage, include this expense. You might not manage forever, and the analysis should work either way. Good property managers also charge a leasing fee, typically one half to one full month rent, each time they place a new tenant.

Vacancy reserve depends on your market. Budget 5% of gross rent in high-demand areas with low vacancy. Budget 8 to 10% in markets with more competition or longer lease-up times. This covers the months between tenants.

Maintenance is 5% to 10% of gross rent for ongoing repairs. Clogged drains, broken appliances, HVAC service calls. Older properties cost more. CapEx reserve covers major replacements: roof, HVAC, water heater, flooring. Budget 5% to 10% of gross rent depending on the age and condition of the systems.

FlipMantis pre-populates these expense categories with market-appropriate defaults. Adjust them based on the specific property and your actual costs as you build your portfolio.

Your rental income estimate drives the entire analysis. Get the rent wrong and every other number is fiction.

Start with rental comps. Look at currently listed rentals and recently rented properties within a mile of your subject. Match the bed count, bath count, and condition. A recently renovated 3/2 rents differently than a dated 3/2 in the same neighborhood. Pay attention to finish level.

Check multiple sources. Zillow rent estimates give you a starting point but they can be off by 10 to 20 percent in either direction. Rentometer pulls actual rental data and shows you the range for your area. Facebook Marketplace and Craigslist show you what landlords are currently asking. None of these sources is perfect. Use all of them and look for the convergence.

Talk to a local property manager. Call two or three and ask what a 3/2 in that zip code rents for, recently renovated, with a particular finish level. They know the market better than any algorithm because they are filling vacancies every week. This is also how you build your property management relationship before you need it.

Do not use the highest number. Use the middle of the range. If comps show $1,100 to $1,350, underwrite at $1,200. If the deal only works at $1,350, it does not actually work. Markets shift, vacancies happen, and rents do not always hit the ceiling.

FlipMantis shows estimated rent ranges based on property characteristics and market data. Use it as a starting point, then validate with local research before committing to the deal.

You have the rent estimate, the expenses, and the purchase price. Now let us run the full analysis.

Open the FlipMantis underwriting tool and select the rental analysis. Enter the purchase price. If the property needs rehab before it is rent-ready, include the renovation cost. For a BRRRR, enter both the initial purchase and the refinanced loan terms.

Enter your financing. Down payment percentage, interest rate, and loan term. Most investment property loans require 20 to 25 percent down at current rates. DSCR loans may have different terms. The tool calculates your monthly PITI automatically.

Plug in your monthly rent. Then review each expense line: property management, vacancy, maintenance, CapEx, and any additional costs like HOA or lawn care. Adjust the defaults if you have better data for the specific property.

The platform produces your monthly cash flow, annual cash flow, cap rate, and cash-on-cash return. It also shows you the breakeven occupancy rate, which is the minimum occupancy percentage you need to cover all expenses. If your breakeven is 92% and local vacancy is typically 6%, you have margin. If your breakeven is 98%, one month of vacancy puts you in the red.

Run a sensitivity analysis. What happens if rent drops 5%? What if interest rates are 0.5% higher than quoted? What if vacancy runs 10% instead of 5%? If the deal still works under stress, it is a solid rental. If it only works under perfect conditions, pass.

Save the analysis to the deal file. As you build your portfolio, you can compare actual performance against your original underwriting and calibrate your estimates for future deals.