Question 1

What is net operating income (NOI)?

Accepted Answer

Net operating income is the annual rental income minus operating expenses (property tax, insurance, maintenance, property management, and vacancy loss). It does not include mortgage payments. NOI tells you how much the property earns before financing costs.

Question 2

What is cap rate and how is it calculated?

Accepted Answer

Capitalization rate (cap rate) equals NOI divided by the property's purchase price. A 6% cap rate on a $200,000 property means it generates $12,000/year in net operating income. Cap rate lets you compare properties regardless of how they're financed.

Question 3

What is cash-on-cash return?

Accepted Answer

Cash-on-cash return measures your annual pre-tax cash flow divided by the total cash you invested (down payment plus closing costs). It shows the yield on the actual dollars you put in, accounting for mortgage leverage.

Rental Property ROI

Property & Financing

Rental Income

Operating Expenses

Projections

Net Operating Income (NOI)

Cap Rate

Cash-on-Cash Return

Monthly Cash Flow

Equity & Cash Flow Over Time

Year-by-Year Projection