Question 1

How do you calculate cash-on-cash return for a rental property?

Accepted Answer

Divide annual pre-tax cash flow by total cash invested. If you invest $50,000 (down payment plus closing costs) and the property generates $5,000 per year in net cash flow, your cash-on-cash return is 10%.

Question 2

What is a good cap rate for a rental property?

Accepted Answer

Cap rates vary by market and property type. In major cities, 4-6% is common. In secondary markets, 6-10% is typical. A higher cap rate implies higher risk and potentially higher returns. Compare cap rates within the same market and property class.

Question 3

What expenses should I include in rental property analysis?

Accepted Answer

Include mortgage payment, property taxes, insurance, property management (8-10% of rent), maintenance (5-10% of rent), vacancy allowance (5-8%), HOA fees, utilities you cover, and capital expenditure reserves for major repairs.

Question 4

What is the 1% rule in real estate investing?

Accepted Answer

The 1% rule says monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for $2,000 or more per month. It is a quick screening tool. Properties that pass often cash flow well, but always run full numbers before buying.

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