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A rental property investment is evaluated using several key metrics. The cap rate (capitalization rate) measures annual net income divided by purchase price — it shows return independent of financing. Cash-on-cash return compares annual net income to the actual cash invested (down payment), showing the yield on your out-of-pocket investment.
Review the inputs carefully and treat the output as an estimate. For decisions involving money, taxes, health, law, or security, compare the result with trusted professional guidance when needed.
What is a good cap rate for rental property?
A cap rate of 4–10% is typical, depending on the market. Urban, high-demand areas often have lower cap rates (3–5%) due to higher prices. Rural or emerging markets may offer 8–12%. A higher cap rate means more income relative to price.
What should I include in monthly expenses?
Monthly expenses should include property taxes, insurance, maintenance reserves (typically 1% of value annually), property management fees, vacancy allowance, and any HOA fees. Mortgage payment is separate from cap rate calculation.
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