Rental property calculator
Cash flow, cap rate, cash on cash return and debt coverage for a rental, with every expense a Metro Detroit landlord actually pays.
How each number works
| Measure | Formula |
|---|---|
| Net operating income (NOI) | Rent and other income, minus vacancy, minus operating expenses. The mortgage isn't an operating expense. |
| Cap rate | NOI ÷ purchase price |
| Cash flow | NOI minus the year's mortgage payments |
| Cash on cash return | Yearly cash flow ÷ (down payment + closing costs + repairs before renting) |
| DSCR | NOI ÷ yearly mortgage payments |
One Michigan detail: a rental pays the non homestead tax rate, which runs about 18 mills higher than an owner occupied home, because school operating millage applies in full. On a home with a $100,000 taxable value, that's about $1,800 a year more. The tax field starts at a typical non homestead figure; replace it with the real bill or the tax estimator's number.
Questions
What's a good cap rate for a rental in Metro Detroit?
It varies a lot by city and condition. Newer homes in strong suburbs often trade at lower cap rates with less upkeep, while older homes in Detroit and inner ring suburbs can show higher cap rates with more repair and vacancy risk. Compare the cap rate to recent sales of similar rentals, not to a rule of thumb.
What's the difference between cap rate and cash on cash return?
Cap rate is net operating income divided by the price, as if you paid cash: it rates the property. Cash on cash return is your yearly cash flow after the mortgage divided by the cash you put in: it rates your deal with your financing.
What DSCR do lenders want?
Many investment property lenders look for a debt service coverage ratio of at least 1.20 to 1.25, meaning the rent's net income covers the mortgage payment 1.2 times or more. DSCR loans base approval on this instead of your personal income.
Why budget for capital expenses separately from repairs?
Repairs are the leaky faucet. Capital expenses are the roof, furnace, water heater and windows that eventually need replacing. Setting aside a percentage every month keeps a big bill from wiping out a year of cash flow.