Key Figures For Evaluating An Investment Property

To evaluate an investment property you need to understand the numbers at play. Here are the key figures you need to be familiar with, and an example.

When it comes to evaluating a real estate opportunity you want to get into the nitty-gritty and really understand the numbers at play.

Here are a few of the key figures you need to be familiar with and a detailed example at the bottom.

Basic Data

1. Average House Prices in the Area

The first thing you want to determine is whether or not this is really a good deal. You want to be buying the property for at or under market rates so that you are assured to make money with the purchase (surprise maintenance costs non-withstanding).

You can use websites like which will give you an idea of the average house prices for the area.

2. Expenses

  • Mortgage – A key figure to get is your mortgage rates. You can quickly and easily estimate this by using an online mortgage calculator to calculate your monthly payments. Confirm with your lender what your down payment and interest on the loan will be to ensure you are using accurate numbers for your calculations. This will be one of the main expenses for the property so it’s a vital number to get right.
  • Property Tax – Look on Zillow or another online source for the most recent annual tax amount and divide by 12.
  • Insurance – You can get a quote pretty quickly from an insurance provider.
  • HOA Fees – This isn’t applicable for all properties so check carefully. It can also be tough to find sometimes. The seller or agent may know the number already, but if not you will have to call the HOA of the neighborhood.
  • Property Management Fees – Property managers usually charge around 10% of the monthly rent. You can reduce these costs by self-managing and using software like Landlord Studio.
  • Vacancy –  I generally estimate 10% of the monthly rent towards vacancy expenses. If you have an awesome property manager or a great system in place to find tenants then this number should actually be less. But 10% allows for a margin of error.
  • Repairs – Again an estimate but should not be left out. Just like with vacancy, I err on the side of caution. If the house has recently been redone or gets a glowing review from, the inspector I’ll reduce this number but in general my estimate is around 15% – 25% of the monthly rent. Use your judgment in deciding what % to use for your estimate, but don’t overestimate the quality of your property and estimate too low

3. Down Payment Requirement

Is this investment feasible? Investor mortgages typically require a down payment of 20 to 25% or sometimes as much as 40%. Individual lenders will determine how much you need to put down to qualify for a loan depending on your debt-to-income ratios, credit score, the property price, and likely rent.

When discussing mortgage rates with a bank you should also check the down payment requirements for your particular scenario. How much you put down will also affect your final mortgage rates.

4. Expected Rental Income

You can work this out in several ways, either ask a real estate agent, use the websites listed below, or if the property is currently a rental you can ask the current owner what the current rent is that they are charging. You should take into account features that you could install to increase the property’s rental value as well.

Websites you can use to help with this research are:

These give you an overview of the average rent in those areas. It’s worth comparing the results given from both to check for discrepancies and get the most accurate estimate.


Once you’ve collected all the above data you can work out a few key ratios that will help simplify your decision for the property.

1. Rental Yield

Gross Yield

The gross rental yield for an individual property can be found by dividing the annual rent collected by the total property cost, then multiplying that number by 100 to get the percentage. The total property cost includes the purchase price, all closing costs, and renovation costs. Use our Free Rental Yield Calculator.

Gross Yield Equation

(Gross Income / Purchase Price) x 100 = Net Yield

Net Yield (Capitalization Rate)

The other and the perhaps more useful number is net rental yield also known as the capitalization rate.

This gives you an idea if you are buying the property at a good deal. It basically compares the return on investment (ROI) to the purchase price.

NOTE: I don’t include the mortgage payment in this calculation.

Capitalization Rate Equation

(Net Annual Income (which is gross income – total expenses) / Purchase Price) x 100 = Net Yield

The lowest cap rate I would ever want to see for any property, whether residential or commercial I don’t care is 6%. The lowest I would want to see on a residential rental property in this market is 8% and even then, there better be a good reason it’s that low (property in a “sexy” market, highly desirable area, etc.). Anything over 8% and you are doing well in my opinion.

2. Cash Flow

You want to ensure that your property has a positive cash flow, negative cash flow, which occurs most often when an investor has borrowed too much to buy the property, can result in a default on the loan unless you are able to sell the property for a profit.

Cash Flow Equation

Monthly expected income – monthly total predicted expenses = Cash flow

If this figure isn’t positive, run.

3. Cash-on-Cash Return

This number is how much return you are getting on the money you invest. If you pay all cash for a property, this number will be the same as the Cap Rate. If you are financing, this number is the most accurate way to see the actual return you are getting on your cash-in and the leverage.

Note: Remember to include the mortgage payment since this one is totally focused on financing.

Cash-on-Cash Return Equation

(Net Annual Income / Total Cash Invested) x 100 = Cash-on-Cash Return

This tells you the return you’re getting from the cash invested which can be a very enticing number depending on how you are leveraged. If you compare the Cash-on-Cash Returns of an all-cash buy versus a financed buy. You may quickly see the benefit of leveraging!


House Price = $200,000

Cash Down = $60,000

Expected Monthly Rent = $2,500

Monthly Expenses:
  • Mortgage = $662
  • Property Tax = $140
  • Insurance = $110
  • HOA Fees = N/A
  • Property Management Fees = $0.65 with landlord studio.
  • Vacancy = 10% ($250)
  • Repairs = 15% ($375)

Total Monthly Expenses:  $1,312

  1. Gross Yield: (($2,500×12)/ $200,000) x 100 = 15%
  2. Net Yield (Cap Rate): ((($2,500-$650)x12)/$200,000) x 100 = 11.1%
  3. Cash flow: $2,500 – $1,312 = $1,188
  4. Cash-on-cash return: (($2,500-$1,312)x12)/$60,000 = 23.8%

This looks like a great deal with an 11% cap rate and a positive monthly cash flow of over $1,000! It would definitely be worth securing this deal (if it were real).

Let us know in the comments below your thoughts, feedback, and questions about any of the above!

We are not licensed financial or legal professionals and as such everything on these pages should be considered general information and ideas and not understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a qualified professional.