Most beginners over-think deal analysis. You don't need a 40-tab spreadsheet to know whether a rental is worth a closer look — you need five numbers. Here's the exact order to run them.
1. Estimate the rent first
Rent drives everything, so pin it down before you fall in love with the property. Pull comparable rentals on the same number of beds/baths within a mile, and use the median — not the highest. A conservative rent estimate is the single best protection against a bad deal.
2. Run the cap rate
The cap rate is net operating income (NOI) divided by price. NOI is annual rent minus operating expenses (taxes, insurance, maintenance, vacancy, management) — but not the mortgage. It tells you the property's unlevered yield and lets you compare deals regardless of financing. In most markets, 5–8% is solid; cash-flow markets can run higher.
3. Check the 1% rule as a screen
The 1% rule says monthly rent should be ≥ 1% of price. It's a 30-second sniff test, not a verdict — a property at 0.8% can still cash-flow with the right financing, and a 1.2% property can lose money with high taxes. Use it to triage, then verify with real numbers.
4. Calculate cash-on-cash return and monthly cash flow
Cash-on-cash return is your annual pre-tax cash flow divided by the actual cash you put in (down payment + closing + rehab). This is the number that reflects your real return as a leveraged investor. Pair it with the dollar figure — monthly cash flow — because a great percentage on a tiny investment may not move the needle.
5. Confirm the DSCR if you're financing
Lenders care about DSCR (NOI ÷ debt service). Above ~1.25 means the rent comfortably covers the mortgage; below 1.0 means the property can't pay for itself. Many investor loans are underwritten on DSCR alone, so knowing it tells you whether the deal is financeable.
Go / no-go
If the conservative rent supports a healthy cap rate, positive monthly cash flow, a cash-on-cash return that beats your alternatives, and a DSCR above ~1.2 — it's worth a deeper look. If not, move on; there's always another deal.
CashFlowRE runs all five of these on every for-sale listing automatically, so you can skip the manual math and sort straight to the deals that pencil out. Create a free account to try it.