Underwriting
How to Underwrite a Rental Property: The Actual Math
Most rental deals die (or should die) in ten minutes of honest arithmetic. Here is the sequence we actually use: five numbers, in order, each one a gate the deal has to pass before the next one matters.
1. Start with rent you can defend
Everything downstream is built on the rent number, so this is where deals get quietly rigged. Don't use the listing agent's "rent potential." Find three comparable rentals (same beds and baths, same condition, same pocket of the market) that actually leased recently, and use the number they support. If you can't defend the rent to a skeptic, you don't have an analysis; you have a wish.
2. Build the real NOI
Net operating income is the property's earnings before any mortgage: effective rent minus operating expenses.
- Vacancy is not zero. Even a well-run rental turns over; 5–8% is a common starting assumption. A vacancy number you can defend beats an optimistic one you can't.
- Operating expenses means taxes, insurance, maintenance, management, and any HOA, from quotes and public records, not from the listing. Insurance especially: get a real quote before you offer, not after.
- The mortgage is not an operating expense. Keeping it out is what lets you compare the property itself across different financing scenarios.
The cap rate calculator turns NOI and price into the fastest gut-check there is: NOI ÷ price, with the formula shown.
3. Now add the debt, and check DSCR
Compute the actual monthly payment for the loan you'd really take; the mortgage calculator shows the amortization formula filled in with your numbers. Then ask the lender's question:
Below 1.0, the property doesn't cover its own mortgage. Many rental lenders want roughly 1.20–1.25 before they'll touch it, and they're not being conservative for fun; that margin is what absorbs the surprises in section 5. The rental cash flow & DSCR calculator computes this alongside monthly cash flow in one pass.
4. Measure the return on your actual cash
Cash flow tells you whether the deal supports itself. Cash-on-cash tells you whether it's worth your money:
Two honesty rules. First, count all the cash in: closing costs are real (estimate them line by line with the closing costs estimator). Second, compare the result against what the same cash earns elsewhere: run it through the investment growth calculator at a boring index-fund assumption. A rental that underperforms the boring alternative needs a reason: appreciation, debt paydown, or a story you actually believe.
5. Stress it before you sign it
Every calculator on this site has a sensitivity table for exactly this step. Rerun the deal at rent 10% lower, at vacancy a few points higher, with insurance quoted rather than guessed. A deal that only works at the optimistic corner of every assumption is not a deal: it's a bet that nothing goes wrong, made with six figures.
The order matters
Rent → NOI → DSCR → cash-on-cash → stress test. Each gate is cheap to check and each one uses the previous one's output, so a deal that fails early costs you ten minutes instead of ten months. And every number along the way should be checkable, which is why each of our calculators shows its formula filled in with your inputs. Run your next deal through the rental cash flow calculator and see whether it survives all five gates.