The formulas
NOI = rent × 12 × (1 − vacancy) − taxes − insurance − maintenance − management − HOA
Cap rate = NOI ÷ purchase price
Cash flow = NOI − annual loan payment
Cash-on-cash return = annual cash flow ÷ cash invested (down payment + closing costs)
Cap rate ignores the loan, so it lets you compare properties on the same basis. Cash-on-cash return includes the loan, so it shows what you earn on the cash you put in. Read more in Cap rate vs cash-on-cash return.
Frequently asked questions
What is a good cap rate?
There is no single answer. It depends on the market, the property type and the interest rate environment. Compare a property with similar ones nearby and with the cost of your loan.
Does the cap rate include the mortgage?
No. The cap rate uses NOI, which is before the loan payment. Cash-on-cash return and cash flow do include the loan.
What expenses are missing?
Capital expenses such as a new roof, large repairs and utilities you pay are not included unless you add them to maintenance or HOA / other. Use realistic numbers.
Is this financial advice?
No. Cap and Flip is a free calculator and is not a lender, broker or advisor. Numbers are estimates.