How to Analyze a Rental Property Deal

The order you run the numbers in matters more than which numbers you run. Most investors start with the exciting ones, decide they like the deal, and discover only later that no lender will write it at that rent.

Reverse the sequence. Start with the constraint that can kill the deal outright, then work toward the questions that only matter once it can close.

Step 1: can this property be financed?

Coverage first, because it is the binding constraint. A lender compares the property's rent to its full monthly payment including taxes, insurance, and any association dues, and the resulting ratio decides whether the loan exists at all.

This is one number and it takes two minutes. If it lands well below the line, nothing further you compute will change the outcome, and you have saved yourself an afternoon. If it clears comfortably, everything downstream is worth doing.

Run it in the DSCR calculator. Two cautions on the inputs: use rent that comparable units are leased at today, and use the actual property tax for that parcel rather than a number borrowed from a different market. Taxes and insurance are the two inputs that most often turn a deal that looked fine into one that does not clear.

Step 2: does it actually pay you?

A property can clear a lender's ratio and still put nothing in your pocket, because the ratio ignores costs that are entirely real to an owner. Vacancy between tenants. Management, whether you pay someone or absorb it yourself. Repairs, and the capital items that arrive on their own schedule.

This is the step where honest inputs decide everything. The rental property calculator carries those costs and reports what the property returns on the cash you actually put in.

Two habits separate a reliable analysis from an optimistic one. Carry management at market cost even when you self-manage, because your time is a real input you are quietly spending. And fund a repairs reserve on a schedule rather than treating repairs as an event, so a roof becomes a line item instead of a surprise.

Step 3: is the price fair?

Coverage and cash-on-cash both tell you about your deal on your terms. Neither tells you whether you are paying too much, because both move when your financing moves.

Cap rate is the comparison tool, since it strips financing out and asks what the property's income is worth on its own. That makes it useful for weighing two properties against each other and against what similar buildings trade for. Run it in the cap rate calculator.

The trap worth knowing: a cap rate computed from a seller's expense figures is a marketing number. Rebuild it from your own operating assumptions before you compare it to anything.

Step 4: what happens if you are wrong?

The step almost everyone skips, and the one that decides whether a bad quarter is survivable.

Take the deal that just passed and lower the rent. Add a vacant month. Then look at what the coverage ratio and the cash flow do. A property that still works is a property you can hold through a soft market. One that breaks on a modest rent adjustment was always depending on conditions holding.

That test is exactly what separated performing loans from delinquent ones in the recent data, which why DSCR deals go bad covers in detail.

Which calculator answers which question

Every one of those is free and none of them ask for your email. The tools hub has all of them in one place.

The numbers that mislead

Shortcuts have their place as a way to reject listings quickly. They stop being useful the moment they become the decision.

The best known is the 1% rule, which compares monthly rent to purchase price and ignores everything that happens between them. Two properties can hit it identically and land in completely different places once taxes, insurance, and dues are carried. Use it to sort a list, then do the actual analysis on whatever survives.

The same caution applies to any single ratio, including the ones above. Coverage tells you about financeability, not about whether the property is a good buy. Cap rate tells you about price, not about your return. The reason this page runs four steps rather than one is that no individual number answers the whole question.

Before you offer

Run the sequence in order, use rent you can defend, price taxes and insurance for the actual parcel, and then check what breaks when the rent comes in low. If the deal survives that, it is worth a conversation.

To see where a specific property prices out, run your numbers.