How we worked it out
Updated as you change the numbers.
- Effective rent = $2,400.00 × 12 less vacancy = $27,360.00. Operating expenses = $10,288.80. NOI = $17,071.20.
- Cap rate = NOI ÷ price = $17,071.20 ÷ $300,000.00 = 5.69%.
- Cash flow = NOI − mortgage $17,963.17 = -$891.97 a year. Cash-on-cash = -$891.97 ÷ $84,000.00 = -1.06%.
Method and assumptions
Net operating income (NOI) is rent after vacancy minus operating expenses (not the mortgage). Cap rate is NOI divided by the price: a financing-free yield for comparing properties. Cash-on-cash return is the year’s cash flow after the mortgage divided by the cash you put in.
The IRR treats your cash in as the first cash flow, then each year’s cash flow (rent and costs growing at the growth rate), and finally the sale proceeds less selling costs and the remaining loan. Income tax and depreciation are not included.
Questions
What is a good cap rate?
There is no single answer: cap rates of about 5 to 10% are common, lower in expensive, stable markets and higher where risk is higher.
Sources
Method and figures checked on . Every worked answer on this page is covered by an automated test. Found a mistake? Tell us.