Purchase Price

The total price you are paying to acquire the investment property.

Down Payment

The upfront cash paid toward the purchase of the property. While primary residences can be purchased with as little as 0% to 3.5% down, investment properties typically require a minimum of 20% to 25% down to secure conventional financing.

Interest Rate

The cost of borrowing money for your mortgage. Because lenders view non-owner-occupied properties as higher risk, interest rates for investment properties are generally 0.5% to 1.5% higher than standard primary residence rates.

Estimated Closing Costs

The fees associated with finalizing your loan and purchasing the property, including title insurance, escrow fees, lender origination fees, and recording fees. For investment properties, this typically ranges from 1.5% to 3% of the purchase price.

Gross Monthly Rent

The total expected monthly income generated from tenants before any expenses, taxes, or mortgage payments are deducted.

Annual Taxes

The property taxes paid to the local county. it is always best to verify the specific parcel's tax history, as taxes can impact your bottom line significantly.

Annual Insurance

The cost of your landlord insurance policy (often called a DP3 policy). Unlike standard homeowners insurance, this covers the physical structure and your liability as a landlord, but does not cover the tenant's personal belongings.

Vacancy Rate

An estimated percentage of your gross rent set aside to account for times when the property is empty between tenants. A 5% to 8% vacancy rate is a standard, conservative estimate used by investors during underwriting.

Management Fee

The cost to hire a professional property management company to handle tenant placement, rent collection, late-night maintenance calls, and evictions. This is typically 8% to 10% of the collected rent. Even if you plan to self-manage, it is wise to factor this in so your numbers still work if you decide to hand it off later.

Maintenance & Repairs

A monthly reserve set aside for fixing things that break, such as plumbing issues, roof repairs, or replacing appliances. Investors usually estimate this at 5% to 10% of the monthly rent depending on the age and condition of the property.

Cap Rate (Capitalization Rate)

Your Net Operating Income (NOI) divided by the Purchase Price. The Cap Rate represents the expected annual return on your investment if you bought the property entirely in cash (without a mortgage). It is the most common metric used to compare the profitability of different properties regardless of how they are financed.

Cash-on-Cash Return

Your Annual Cash Flow divided by your Total Cash Invested (Down Payment + Closing Costs). This is one of the most important metrics for leveraged investors, as it tells you exactly what percentage return you are getting on the actual cash you pulled out of your pocket to close the deal.

Monthly Cash Flow

The actual profit left in your pocket every month after all operating expenses and the mortgage payment (Principal & Interest) have been paid.

Net Operating Income (NOI)

The total income the property generates minus all operating expenses (taxes, insurance, management, maintenance, and vacancy). Note: NOI does NOT include your mortgage payment. It strictly measures how much money the property itself produces.

Total Cash Needed to Close

The total liquidity required to purchase the property, combining your down payment and your estimated closing costs.

Monthly Mortgage (P&I)

The Principal and Interest portion of your monthly loan payment. This does not include taxes or insurance, as those are calculated separately in your operating expenses.

DSCR Ratio (Debt Service Coverage Ratio)

Your Net Operating Income divided by your Annual Mortgage Payment. Investor-friendly lenders use this ratio to determine if the property generates enough income to cover its own debt. A DSCR of 1.25 or higher is generally required to easily qualify for an investment loan.

The 1% Rule

A quick rule of thumb used by investors to quickly screen properties. It states that a property's gross monthly rent should be at least 1% of its total purchase price to be considered a strong cash-flowing investment.

Gross Rent Multiplier (GRM)

The Purchase Price divided by the Annual Gross Rent. It measures how many years it would take for the property to pay for itself in gross rent. A lower GRM generally indicates a better, more profitable investment.

Operating Expense Ratio (OER)

Your Total Operating Expenses divided by your Gross Rent. It measures how efficiently a property is running. A standard rental usually operates between a 35% and 50% OER. If a property has a 65% OER, it means taxes, HOA fees, or maintenance costs are eating up too much of the profits.

Break-Even Ratio

Your (Operating Expenses + Mortgage Payment) divided by your Gross Rent. This tells you exactly how full the property needs to be to cover all its costs. For example, a 75% Break-Even Ratio means the property can sit vacant 25% of the year without you having to pay out of pocket to keep it afloat. Lenders love to see a low Break-Even Ratio.