Introduction
Analyzing a rental property doesn’t need to be complex. You don’t need an MBA or a 20-tab Excel sheet. What you need is a simple, 3-step framework to quickly evaluate if a property is a good deal.
Step 1: Calculate Net Operating Income (NOI)
NOI = Gross Rental Income – Operating Expenses
Let’s say:
Rent: $2,000/month → $24,000/year
Expenses (taxes, insurance, repairs): $7,000/year
→ NOI = $17,000
This is your income before mortgage payments.
Step 2: Determine Your Cap Rate
Cap Rate = NOI ÷ Purchase Price
If the property costs $300,000:
$17,000 ÷ $300,000 = 5.7% Cap Rate
A good cap rate depends on the market, but in most cities, 5–7% is standard for single-family rentals.
Step 3: Run the Cash-on-Cash Return
This tells you how much you’re earning on the cash you invested.
If you put $60,000 down on the property:
Annual Cash Flow (after mortgage): $4,800
$4,800 ÷ $60,000 = 8% Cash-on-Cash Return
Bonus: Factor in Appreciation and Tax Benefits
Don’t forget:
Property appreciation
Mortgage principal paydown
Depreciation and tax deductions
These can turn a good deal into a great one.
Final Thoughts
Real estate investing rewards those who understand the numbers. At SoldByConner, we help clients analyze deals that fit their personal goals.
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