A rental property can look great on a listing and lose money every month. These five numbers show whether a deal works — illustrated with one example.
Example property: $300,000 purchase price, $2,400 monthly rent, 20% down ($60,000), 30-year loan of $240,000 at 7.03% (Freddie Mac, September 24, 2026). We assume 40% of rent goes to taxes, insurance, maintenance, vacancy and management. Your real costs will differ.
1. The 1% rule (quick filter)
Monthly rent should be roughly 1% of the purchase price. Here, $2,400 ÷ $300,000 = 0.8% — below the guideline, so look closer before going further.
2. Net operating income and cap rate
Net operating income (NOI) is rent minus operating costs, before the mortgage: $28,800 × 60% = $17,280 a year. Cap rate = NOI ÷ price = 5.76%. Cap rate lets you compare properties regardless of financing.
3. Cash flow
The mortgage payment is about $1,602 a month ($19,219 a year). NOI of $17,280 minus $19,219 leaves −$1,939 a year — negative cash flow.
4. Debt service coverage ratio (DSCR)
DSCR = NOI ÷ annual mortgage payments = $17,280 ÷ $19,219 = 0.90. Many lenders want 1.2 or higher for investment loans; below 1.0 means the rent does not cover the debt.
5. Cash-on-cash return
Annual cash flow ÷ cash invested = −$1,939 ÷ $60,000 = −3.2% (before closing costs). This deal would rely entirely on future appreciation.
What would make it work?
- A lower purchase price or higher rent.
- A larger down payment, reducing the mortgage.
- Lower operating costs — for example, self-managing.
- A market where rent is higher relative to price — often outside the most expensive regions. See regional prices on Market Insights.
At 7% mortgage rates, many deals that worked a few years ago no longer cash-flow. Running these five numbers first protects you from buying on hope.
Exploring investment properties? Tell us your target region and budget.