A rental property is three investments stacked on top of each other: a building that collects rent, a mortgage that eats cash flow, and an appreciation bet you did not explicitly agree to. This calculator separates them. It runs the year-one operating numbers, monthly cash flow, cap rate, and cash-on-cash return, then solves for the rent the deal actually needs to break even or hit a return target, and shows what the famous 1% rule delivers at 2026 mortgage rates.
Rental underwriting goes wrong in a predictable way: buyers fall in love with a property, then reverse-engineer the assumptions that justify it. This page runs the numbers in the opposite direction. It starts with the lease and the operating costs to produce net operating income, the building's own yield before any financing, then subtracts the mortgage to get the number that actually hits your bank account each month, and finally divides by the cash you wrote checks for to get the cash-on-cash return. Along the way it flags the 1% rule verdict, because that heuristic is the most widely quoted screen in real estate and the one least often re-priced for current interest rates.
The last block solves the deal backwards. Instead of asking whether a given rent works, it asks what rent the deal needs: to break even in cash, to hit 1 percent of the purchase price, and to reach your target cash-on-cash return. If your market's rents sit far below those thresholds, the property is an appreciation bet, and the honest move is to evaluate it as one, with the total return lens at the bottom of the results.
Variables in plain terms. NOI, net operating income, is what the building earns as if you had bought it free and clear: rent collected after vacancy, minus the operating costs of keeping a tenant in it. Debt service is twelve monthly mortgage payments, principal and interest only; your own tax and insurance escrow on the house you live in has no place here because the operating lines already carry the property's tax and insurance. Cash invested is the money you actually handed over at closing, the down payment plus closing costs, which the default sets at 3 percent of the price. The 1% rule check is simply monthly rent divided by purchase price.
The required-rent formula is the useful one to internalize. Vacancy, maintenance, and management are all charged as percentages of rent, so each dollar of rent arrives shrunken by those three rates. At the defaults, only 79 cents of every rent dollar survives to cover the fixed costs and the mortgage, which is why the required rent below is so much higher than the mortgage payment alone suggests.
Take a $350,000 property with 25 percent down: an $87,500 down payment, a $262,500 loan at 7.28 percent for 30 years, and $10,500 of closing costs, so $98,000 of cash invested. The mortgage payment is $1,796.06, or $21,552.69 a year. The lease: $2,400 a month, $28,800 a year, minus 5 percent vacancy leaves $27,360 collected. Operating costs are $3,185 of property tax at 0.91 percent, $1,800 of landlord insurance, and 8 percent each for maintenance and management, $2,304 apiece, for $9,593 in total. Net operating income is $17,767.00, a 5.08 percent cap rate on the price.
| Year-one result at the defaults | Amount |
|---|---|
| Cash invested (down + closing) | $98,000.00 |
| Monthly mortgage payment | $1,796.06 |
| Effective rent collected | $27,360.00 |
| Operating expenses | $9,593.00 |
| Net operating income (5.08% cap rate) | $17,767.00 |
| Annual debt service | $21,552.69 |
| Monthly cash flow | −$315.47 |
| Cash-on-cash return | −3.86% |
That is the honest year-one picture at 2026 rates, and it is the typical picture: a conventionally financed rental in most U.S. metros loses money in cash flow right now. The 1% rule flags it immediately, rent is 0.686 percent of price against the 1 percent target of $3,500. The question the rest of this page answers is what that rule is actually worth today.
The 1% rule says buy when monthly rent is at least 1 percent of price. It circulated for years because at the 4-ish percent mortgage rates of its heyday, a 1% property cleared its debt service with room to spare. Run the same screen at 7.28 percent and the arithmetic inverts. To hit 1 percent here, the rent must reach $3,500, and even then the property produces only $553.53 of monthly cash flow, a 6.78 percent cash-on-cash return, respectable but nowhere near the double-digit returns the rule promised its originators. Debt service is the reason: the default loan costs $21,552.69 a year, and each point of mortgage rate moves that bill by roughly $1,100 to $1,500.
| Monthly rent | Cap rate | Monthly cash flow | Cash-on-cash |
|---|---|---|---|
| $2,200 | 4.53% | −$473.47 | −5.80% |
| $2,400 (default) | 5.08% | −$315.47 | −3.86% |
| $2,600 | 5.62% | −$157.47 | −1.93% |
| $2,800 | 6.16% | +$0.53 | +0.01% |
| $3,000 | 6.70% | +$158.53 | +1.94% |
Each $100 of monthly rent is worth about $948 of year-one cash flow, because only 79 cents of every rent dollar survives the vacancy, maintenance, and management haircut. The solved-for thresholds at the defaults: break-even cash flow needs $2,799.33 of rent, the 1% rule needs $3,500.00, and an 8 percent cash-on-cash return needs $3,626.34. Rate cuts change this picture faster than rent growth does; at 6 percent the default property's monthly loss shrinks from $315.47 to $93.24, and at 6.5 percent it is $178.60. If you are underwriting a purchase today for a refinance later, the refinance break-even calculator prices that bet, and the payment mechanics behind every row are the same ones in the amortization calculator.
The results include a second lens on purpose. Add the year-one principal paydown on the loan, $2,525.86, to appreciation at 3 percent, $10,500, and the default property's total year-one return is $9,240.18 on $98,000 invested, about 9.4 percent, despite the negative cash flow. The tenant is buying part of your equity for you, and at the long-run appreciation pace in the FHFA house price index, roughly 4.3 percent annually over recent decades, the levered total return looks generous. This is the actual case for owning rentals in expensive markets, and it deserves to be stated plainly rather than disguised by marketing screenshots of cash flow.
But treat the total return figure as conditional on things you do not control. Appreciation can sit near zero for a decade; a leveraged property that neither appreciates nor cash-flows converts your savings into mortgage interest with mechanical reliability. The monthly shortfall is real money that must come from a paycheck, and a vacancy or a $9,000 roof arrives on top of it. And the tax side softens the blow without fixing it: residential rental property depreciates over 27.5 years per IRS Publication 527, generating a large paper deduction on a property like this, but depreciation is not cash and it is recaptured at sale. If the deal only works with full appreciation, every year of it, the rent ladder above is the more honest negotiating tool, since pushing rent is a lever you actually hold. If you are weighing a rental against simply owning your own home instead, the rent vs buy calculator runs that comparison, and the ROI calculator frames the same total-return math against any other use of the $98,000.
Sometimes, but only with eyes open and a plan for the shortfall. At this calculator's defaults, a $350,000 property rented for $2,400 loses $315.47 a month in cash yet returns about 9.4 percent a year once first-year principal paydown ($2,525.86) and appreciation at 3 percent ($10,500) are counted, because the tenant is effectively buying part of your equity for you. That trade makes sense only if three conditions hold: you have outside income that comfortably absorbs the monthly check, you genuinely expect the appreciation and can hold through a downturn without selling, and the total return beats what the same $98,000 of cash would earn elsewhere with none of the landlord work. The trap is counting appreciation that never arrives. House prices can sit flat for a decade, and a leveraged property that neither appreciates nor cash-flows is a machine that converts your savings into mortgage interest. Run the rent ladder: at the default numbers, every extra $100 of monthly rent moves year-one cash flow by about $948 a year, so pushing rent is often the more reliable lever than hoping for price growth.
It was built for cheaper money, and today's rates have broken it. The 1% rule says a rental is worth buying when monthly rent is at least 1 percent of the purchase price, a screen that worked when mortgages cost around 4 percent. At this calculator's default 7.28 percent rate, the property would need $3,500 a month in rent to hit 1 percent, and even then the cash-on-cash return is only 6.78 percent, with $553.53 of monthly cash flow on $98,000 invested. The reason is arithmetic: debt service scales with the rate, and at 7.28 percent the annual debt service on the default loan is $21,552.69, roughly $4,400 more than at 6 percent. The practical version of the rule for 2026 is to solve for the rent you actually need: the default deal breaks even in cash at $2,799.33 a month and reaches an 8 percent cash-on-cash return only at $3,626.34 a month. If your market cannot support that rent, the honest conclusion is that the deal is an appreciation bet, and it should be evaluated as one.
Cap rate is the property's unlevered yield: net operating income divided by the full price, ignoring the mortgage entirely. Cash-on-cash return is the levered yield on the money you actually wrote checks for: annual cash flow after debt service, divided by down payment plus closing costs. At the defaults, the property has a 5.08 percent cap rate on price and a negative 3.86 percent cash-on-cash return on the $98,000 invested, and both numbers are true at once. Cap rate answers whether the building itself is priced sensibly and lets you compare properties regardless of financing; cash-on-cash answers whether your specific deal, with your specific loan, pays you. The gap between the two is the cost of leverage: when the mortgage rate exceeds the cap rate, every borrowed dollar drags cash flow down, which is exactly what negative leverage means. Neither metric counts principal paydown or appreciation, so a property can show a modest cap rate and still build wealth, and it can show a positive cash-on-cash return while the building itself is overpriced.
The four this calculator forces you to price: vacancy, maintenance, management, and the difference between repairs and capital expenses. Vacancy is the most commonly skipped line; a property that sits empty one month every two years has a 4 percent vacancy rate before anything breaks, and the default here uses 5 percent. Maintenance at 8 percent of rent covers routine work, but big-ticket items, roofs, HVAC, water heaters, come from a separate capital reserve that can consume an entire year's cash flow in one invoice. Landlord insurance typically costs 20 to 25 percent more than a homeowner policy for the same building. And if you will not answer maintenance calls at 11 p.m. yourself, property management at 8 to 10 percent of rent is a real cost: on the default deal it is $2,304 a year. Self-managing narrows the default property's monthly loss from $315.47 to about $123, but it does not erase it, which tells you how thin the margin is at 2026 rates. Turnover costs, repainting, re-carpeting, listing fees, and local rental licensing or inspection fees belong in the same ledger.
Price it as a purchase of time, then check whether the deal survives the fee. A management company charges 8 to 10 percent of collected rent, so on the default $2,400 rent that is $2,304 to $2,880 a year for tenant screening, rent collection, maintenance coordination, and compliance with landlord-tenant law. Set the management input to 0 and rerun the calculator to see the deal without it: the default property's monthly cash flow improves from minus $315.47 to about minus $123, meaning self-management saves roughly $2,304 a year but does not make the property cash-flow positive at this rent and rate. That comparison is the decision in miniature: if the property only works when you work for free, the rent or the price has to change. A manager also has value beyond the fee, better tenant screening reduces vacancy and eviction risk, and many lenders and insurers expect professional management on certain loans. The mistake to avoid is treating management as optional in the math and mandatory in reality; if you will pay it, put it in the inputs from the start.
Rental profit is ordinary income on Schedule E, but the largest deduction is one this calculator never shows: depreciation. Residential rental property is depreciated over 27.5 years under IRS Publication 527, so on the $350,000 default property, the building portion, typically everything except the land, generates roughly $12,000 or more of annual paper deduction that reduces taxable rental income even while the property produces no cash. The catch arrives at sale: depreciation taken is recaptured and taxed at up to 25 percent, and any appreciation gain is taxed as capital gain, which is why many investors hold until death, when heirs receive a stepped-up basis and the deferred taxes disappear. Losses have their own rules: a paper loss from depreciation is generally passive and can be blocked from offsetting wages, though up to $25,000 of passive rental loss can be deducted if you earn under $100,000 and actively participate, phasing out above that. This calculator deliberately excludes income taxes because brackets and basis allocations vary too much to model honestly; run your specific numbers with the Publication 527 rules before buying.
All calculation logic on this page is implemented from the primary documents below. Each one is listed with the figure it supplies, so any rate or threshold in the result can be traced back to its published source.
Same published formulas, same sourcing standard, one page each.