How to Analyze a Rental Property Investment
Successful real estate investing isn't about guessing; it's about the numbers. Whether you are analyzing a potential deal in the US housing market or calculating yield for a UK Buy-to-Let property, understanding your cash flow is critical.
Key Metrics Explained
Cash on Cash Return (CoC)
This measures the annual return on the actual cash you invested (Down Payment + Closing Costs). Unlike ROI, it ignores the loan amount, giving you a true picture of your money's performance.
Formula: Annual Cash Flow / Total Cash Invested
Cap Rate (Capitalization Rate)
Cap Rate indicates the property's natural rate of return if it were bought 100% with cash. It helps you compare properties regardless of financing.
Formula: Net Operating Income (NOI) / Purchase Price
What is a "Good" ROI for Rental Property?
- Cash Flow: Investors typically look for $100-$300 per door in monthly net profit.
- CoC Return: The stock market averages 7-10%. Real estate investors often target 8-12% CoC return to justify the illiquidity.
- Cap Rate: In 2025, a Cap Rate between 4% and 6% is common in metro areas, while rural areas may offer 8%+.
Disclaimer: This tool is for educational purposes only. Always consult with a qualified financial advisor or tax professional before making investment decisions.