The Rental Math

Rental property investing sounds glamorous until you run the real numbers. The key metric is cap rate (capitalization rate): annual net operating income divided by property price.

A $250,000 property renting for $2,000/month generates $24,000/year in gross rent.

Subtract taxes ($3,000), insurance ($1,500), maintenance ($3,000), vacancy ($2,400), and management ($2,400). NOI: $11,700. Cap rate: 4.7% — decent but not spectacular, and it excludes the mortgage. This simple version also leaves out a CapEx reserve for big-ticket repairs; fold that in and the real return shrinks further. The 1% rule says monthly rent should be at least 1% of price — hard to find, but a solid filter.