How This Calculator Works
The tool follows the standard institutional underwriting waterfall. Each step feeds the next, and every input is editable so you can stress-test a deal in seconds.
Step 1: Gross Scheduled Income (GSI)
GSI is the total annual rent if every unit were occupied 100% of the time, plus other income like laundry, parking, or storage. Enter each unit's rent separately — sellers' pro formas often blend rents to hide a below-market lease.
Step 2: Effective Gross Income (EGI)
EGI = GSI − vacancy and credit loss. Small residential properties typically run 5-10% vacancy. Using 6% is a realistic default; using 0% is how beginners fool themselves.
Step 3: Operating Expenses
- Fixed costs: property taxes (verify with the county — many jurisdictions reassess after sale) and landlord insurance.
- Utilities: water, sewer, trash, and common-area electric. If tenants pay their own utilities, this line shrinks dramatically.
- Maintenance reserve: modeled as a percentage of GSI (8% is a common default for older buildings).
- CapEx reserve: the roof-and-boiler fund. This is the line sellers omit and buyers regret. Pre-1980 buildings often need 8-12% of GSI.
- Property management: computed on EGI (8-10% is market rate) even if you self-manage — your labor has value, and lenders underwrite it.
Step 4: Net Operating Income (NOI)
NOI = EGI − Total Operating Expenses
NOI deliberately excludes the mortgage. It measures the property's income-producing ability independent of financing, which is why it drives both valuation and DSCR lending.
Step 5: Returns
- Cap Rate = NOI ÷ Purchase Price. The property's unlevered yield — use it to compare deals and estimate value (Value = NOI ÷ market cap rate).
- Cash-on-Cash Return = (NOI − Annual Debt Service) ÷ Total Cash Invested. What your actual dollars earn after financing. 8-12% is a solid leveraged target.
- Monthly Free Cash Flow = (NOI − Debt Service) ÷ 12. The number that hits your bank account.
Worked Example
A $450,000 duplex with rents of $1,600 and $1,500 plus $100/month of laundry income produces $38,400 of GSI. At 6% vacancy, EGI is $36,096. Expenses — $5,200 taxes, $2,400 insurance, $3,000 utilities, 8% maintenance ($3,072), 8% CapEx ($3,072), and 8% management ($2,888) — total $19,632. NOI is $16,464, a 3.7% cap rate at the asking price. With $2,150/month debt service, annual cash flow is −$9,336: this deal fails at list price and needs either a price cut or a rent story. That is exactly the kind of verdict this calculator delivers in ten seconds.
Frequently Asked Questions
Should I include the mortgage in operating expenses?
No. Debt service is a financing cost, not an operating cost. Keeping it out of NOI is what makes cap rates comparable across deals and what DSCR lenders underwrite against.
What vacancy rate should I use?
5-8% for stable working-class neighborhoods, 8-12% for high-turnover areas, and never 0% — even the best buildings lose a month here and there.
What's a good cash-on-cash return on a duplex?
With typical leverage, 8-12% pre-tax is a healthy target. Below 4-5%, you are buying appreciation and amortization rather than income — which can still be rational, but only as a conscious choice.