Key rental property metrics
- Cap rate (capitalisation rate): NOI ÷ purchase price. Measures unleveraged return. 6-10% is typical for good rental markets.
- Cash-on-cash return: Annual cash flow ÷ total cash invested (down payment + closing costs). Measures leveraged return. 8-12%+ is strong.
- NOI (net operating income): Rental income minus all operating expenses, before mortgage. Used to compare properties independently of financing.
- Cash flow: What actually hits your bank account each month after the mortgage. Positive means the property pays for itself and then some.
The 50% rule (quick sanity check)
Experienced investors estimate that operating expenses (excluding mortgage) will average around 50% of gross rent in the long run. If your rent is ₹35,000, expect ~₹17,500/month in taxes, insurance, vacancy, repairs, etc. If the mortgage leaves a comfortable cushion after that, the deal likely cash flows.
FAQ
Should I include mortgage principal in NOI?
No. NOI is calculated before financing. The principal portion of your mortgage is equity build-up, a separate return that doesn't show in cash flow but adds to your overall ROI.
What's a good cap rate?
Depends on the market. Tier-1 Indian cities (Mumbai, Delhi, Bangalore): 3-5%. Tier-2/3: 5-8%. US: 5-10%. Higher cap rates usually mean higher risk or less appreciation.
Does this account for appreciation?
No. This calculator focuses on cash returns. Appreciation is a bonus — in long-held rentals, property value growth often matches or exceeds cash returns over decades.