How to Analyze a Potential Rental Property

Chattanooga Robert Wills July 23, 2025

Not every property makes a good rental. Successful investors use clear metrics to evaluate deals. Here’s how to analyze a rental property before you buy.

1. Estimate Monthly Income

Gross Rent: Start with projected monthly rent based on comps in the area.
Other Income: Include things like pet fees, laundry, or parking if applicable.

2. Estimate Monthly Expenses

Property taxes
Insurance
Property management (typically 8–10%)
Maintenance and repairs (use 1–2% of property value yearly)
Capital expenditures (roof, HVAC, etc.)
Vacancy rate (5–8% is standard)
HOA fees (if applicable)
Mortgage principal and interest

3. Calculate Net Operating Income (NOI)

NOI = Gross Income – Operating Expenses

Exclude mortgage payments from this step. NOI helps you measure how well the property performs on its own.

4. Calculate Cash Flow

Cash Flow = NOI – Mortgage Payments

Positive cash flow means you’re earning income each month. Negative cash flow means you’re subsidizing the property out of pocket.

5. Determine the Cap Rate

Cap Rate = (NOI ÷ Purchase Price) × 100

Aim for at least 6–8% in most markets. Higher is better, but don’t ignore risk.

6. Analyze Cash-on-Cash Return

Cash-on-Cash Return = (Annual Cash Flow ÷ Total Cash Invested) × 100

This shows your return based on the actual money you put in (down payment, closing costs, rehab). A good benchmark is 8–12%.

7. Check the 1% Rule

Monthly Rent ≥ 1% of Purchase Price

This is a quick filter. If a $200,000 property doesn’t rent for at least $2,000, run deeper numbers or move on.

8. Look for Red Flags

High vacancy rates in the area
Low job growth or declining population
Expensive repairs or deferred maintenance
HOA restrictions on rentals
Overpriced deals with low cap rates

Conclusion

A rental property is only as good as the numbers behind it. Run the math. Be honest about the risks. If the property cash flows well, fits your long-term goals, and passes key tests, it could be a solid investment.