What net operating income actually is
Net operating income, NOI, is what a rental property earns from running it, before anything to do with how it was paid for. It starts from effective gross income, the rent left over once an allowance for vacancy between tenants is taken out, and subtracts every operating expense: property tax, insurance, maintenance, the management fee and HOA or other fixed costs.
The deliberate omission is the mortgage. NOI excludes debt service, interest and loan fees, and also leaves out depreciation and capital expenditure on big one-off items, because those depend on how a specific buyer financed the deal rather than on how the property itself performs. Two people buying the identical property with different mortgages, or no mortgage at all, get exactly the same NOI, which is what makes it the number every other metric here is built from.
Cap rate: the all-cash lens
Cap rate takes NOI and divides it by the purchase price, turning it into a percentage yield.
Because NOI already excludes the mortgage, cap rate answers "what would this property yield if I paid cash for it", regardless of whether you actually did. That makes it the right tool for comparing two properties, or a property against the wider market, without financing choices getting in the way. It is the wrong tool, for the same reason, for judging what a leveraged buyer actually pockets each month; that question belongs to cash-on-cash return, below.
Cash-on-cash return: what leverage actually did for you
Cash-on-cash return switches from the all-cash lens to the one that matters once a mortgage is involved: how hard is the cash you actually put in working for you.
Cash invested is everything that left your account to get the deal done, the down payment plus closing costs, not the purchase price. That is the detail a naive "profit over price" sum gets wrong: leverage means only a slice of the price was tied up, so the return is measured against that slice.
A worked example shows leverage is not automatically a free upgrade. On this page's default scenario, a £250,000 property at 25% down, 6.5% over 30 years, £2,200 rent, cap rate comes out at 6.98% but cash-on-cash lands lower, at 4.71%. The reason is the mortgage constant, the annual mortgage payment divided by the loan amount, which works out to about 7.58% here, above the 6.98% cap rate. Borrowing at a cost above what the property yields unlevered is a drag, not a boost: cash-on-cash sits below cap rate because the loan currently costs more, all in, than the property earns. Flip that relationship, a cap rate above the mortgage constant, and leverage instead pulls cash-on-cash above cap rate. Push the down payment low enough and cash flow can turn negative even though NOI stays positive, which is what "leverage cuts both ways" means in practice.
Cap rate vs cash-on-cash: when each one matters
Reach for cap rate when comparing properties or markets on a level footing, since it strips financing out entirely and lets a cash buyer and a heavily mortgaged one be judged on the same basis. Reach for cash-on-cash when the question is personal: given the actual loan on the table, what does this property hand back on the cash tied up. A property with an unremarkable cap rate can still be an excellent cash-on-cash deal with the right financing, and a strong cap rate can turn mediocre if the loan terms are poor. Neither number is more honest than the other; they answer different questions, and a serious look at a deal checks both.
The 1% rule, used as a screen, not gospel
The 1% rule is a ten-second filter, nothing more: monthly rent at or above roughly 1% of the purchase price is treated as a loose sign that a deal might be worth a proper look. It says nothing about property tax, insurance, vacancy or maintenance, so a property can sail past 1% and still lose money every month, and plenty of good deals in expensive metro markets never get near 1% at all. Used as a first pass across a long list of listings it saves time; used as a decision on its own it misleads as often as it helps, which is why this page treats every 1% rule reading as a screen to note, then moves straight on to NOI, cap rate, cash flow and cash-on-cash for the real answer.
The expenses beginners forget
Vacancy is the one first-time landlords most often skip, budgeting as if the property will be let fifty-two weeks a year, every year; a 5–8% allowance is the more realistic starting point. Maintenance gets under-budgeted too: routine upkeep, a dripping tap, a service call, is a different thing from a capital item like a roof or a heating system, which a slim annual percentage will not stretch to cover. A management fee is easy to skip when self-managing feels free; it rarely is, once the hours spent finding tenants, chasing rent and handling repairs are priced at anything close to what an agent would charge. Turnover costs between tenants, cleaning, minor redecoration, re-advertising, catch people who only ever modelled a single continuous tenancy. Property tax can also jump after a purchase if the local assessment resets to the new sale price, worth checking before assuming last year's bill will repeat.
The honest bit: voids and repairs happen
Every figure on this page is an assumption, and real rental properties do not always cooperate. Tenants leave, sometimes at inconvenient times of year, and a property can sit empty longer than any vacancy allowance anticipated; something breaks that was not on this year's maintenance budget. None of that makes the numbers pointless; it is why the vacancy and maintenance sliders exist as separate, adjustable lines rather than an optimistic single figure, and why this page shows a negative cash flow honestly, in red, rather than hiding it. A calculator that only ever shows a comfortable answer is not modelling a real rental property.
Reading the 5-year projection
The table runs a genuine month-by-month amortisation of the loan, the same discipline as the Mortgage Calculator, rather than a rough yearly approximation. Rent grows each year at the typed rent growth rate, and since maintenance, the management fee and the vacancy allowance are all entered as a percentage of rent, they scale with it automatically; property tax, insurance and HOA are held flat in nominal terms across the projection, a simplification worth keeping in mind on a longer hold. Home value grows at the typed appreciation rate, compounding once a year. Cumulative cash flow is the running total of every year's NOI minus the mortgage payment; total return adds that cash flow to the equity gained since day one, from both paydown and appreciation, against the original cash invested, the fullest single number on the page for judging whether a hold has been worth it so far.
Questions people ask
Why does NOI exclude the mortgage payment?
Because NOI is meant to describe the property itself, not a particular buyer's financing. Debt service depends on the loan, deposit and rate someone chose, none of which changes how much rent the building can command or how much it costs to run. Excluding it keeps NOI comparable between an all-cash buyer and a heavily mortgaged one; the mortgage only enters the picture afterwards, when working out monthly cash flow.
What counts as "cash invested" for cash-on-cash return?
The down payment plus closing costs, the two amounts that actually left your account to complete the purchase, not the purchase price itself. Leaving out closing costs understates how much cash was really tied up and overstates the return, so this calculator adds the typed closing cost figure to the down payment automatically.
Is a negative cash flow always a bad deal?
Not automatically, though it deserves scrutiny. A property that loses a modest amount each month while equity builds through mortgage paydown and appreciation can still work out over a long hold. It becomes a warning sign when the shortfall is large relative to income, unlikely to be closed by rent increases, or the result of an overly optimistic rent figure. This calculator shows a negative figure honestly rather than treating it as an error.
Why is my cash-on-cash return lower than my cap rate?
Because the effective cost of the loan, the mortgage constant, currently sits above the property's cap rate, which means leverage is working against you rather than for you on this particular deal. It flips the other way, cash-on-cash above cap rate, whenever the cap rate is higher than the mortgage constant, which is the entire idea behind "leverage cuts both ways".
Should I trust the 1% rule on its own?
No. Treat it as a quick first filter across a list of properties, not a verdict on any single one. It ignores property tax, insurance, vacancy and maintenance entirely, so a property can pass the 1% screen and still lose money, and a property that fails it can still cash flow comfortably once the real expense stack and financing are worked through, which is what the rest of this page is for.
What vacancy percentage should I actually use?
Around 5–8% of rent is the common starting range in landlord guides, working out to somewhere between roughly two and four weeks empty a year. Areas with strong rental demand or long-term tenants can run lower; older stock, a softer local market, or a history of longer void periods on the specific property justify pushing the figure higher rather than assuming the best case.
How is this different from the ROI Calculator or the Rent vs Buy Calculator?
The ROI Calculator works out a plain or annualised return from any invested and returned amount, with no property detail at all. The Rent vs Buy Calculator compares living in a home you buy against renting and investing the difference, a personal-finance question rather than a landlord one. This page is built for a rental as an investment: NOI, cap rate, cash-on-cash and the expense stack that only apply once a property is let out rather than lived in.
This calculator produces scenario arithmetic from the figures you enter, not investment advice. Real rental income, expenses, vacancy and financing terms vary by property, location and lender, and past appreciation or rent growth is no promise of future performance. Speak to a letting agent, accountant or financial adviser before committing to a purchase this size.