How to evaluate a rental property — five numbers
Five numbers: purchase price (from comps), gross rental income (Rentometer + local comps), operating expenses (30–55% of gross), Net Operating Income (gross − op-ex), and the two yields — cap rate (NOI ÷ price) and cash-on-cash (cash flow ÷ cash invested).
Operating expenses for single-family rentals run 30–50% of gross rent; small multifamily 35–55%. Beware underwriting that assumes 20–25% — it's almost certainly missing items. Include: property tax (0.5–2.5% of value), insurance ($1.2K–$3K typical), maintenance (1–2% of value), capital reserves (1% of value for roof/HVAC/water heater), management (8–12% of rent if hired), vacancy (5–10%), HOA, utilities (if landlord-paid).
Cap rate is the all-cash yield — your NOI ÷ purchase price. Typical 2026 ranges: 5–7% in stable markets, 6–8% in growth markets, 7–10% in higher-risk or declining ones. Cash-on-cash is the leveraged version — cash flow after mortgage ÷ cash invested. Target 6–12% for typical leveraged rental. Under 5%, you've overpaid or financed wrong; above 15%, you're either lucky or missing risk.
Two old rules of thumb: the 1% rule says monthly rent should be ~1% of price (rarely hit in expensive markets); the 50% rule says non-mortgage expenses average ~50% of gross rent over time. Use them as gut-checks, not formulas.