Start with realistic rent
Everything downstream depends on the rent estimate, so anchor it in what comparable units actually rent for nearby — not the optimistic number a listing or seller suggests. Be conservative; vacancy and turnover eat into the headline figure.
Gross yield — the quick filter
Gross yield = annual rent ÷ purchase price. It's a fast first screen to compare properties before you dig deeper. A higher gross yield leaves more room to absorb costs, but it ignores expenses — so it's a filter, not a verdict.
Cap rate — the real comparison
Cap rate = net operating income (rent minus operating expenses, excluding the mortgage) ÷ price. It lets you compare properties on an apples-to-apples basis regardless of financing. Operating expenses to subtract: taxes, insurance, management, maintenance, vacancy allowance, and HOA.
Cash flow — what actually hits your account
Cash flow = rent minus ALL costs including the mortgage. A property can show a healthy cap rate and still be cash-flow negative once you add the loan. Model it at a realistic rate and down payment, and ask whether you're buying for monthly income or long-term appreciation — they're different bets.
Stress-test before you commit
- What if it sits vacant two months a year?
- What if insurance jumps (flood/storm areas especially)?
- What if a major system needs replacing in year one?
- What if rents are flat for three years?
Run the numbers on any listing
HomeInteli's report includes an investment lens — estimated rent, gross yield, and cap rate — alongside the true monthly cost and a fair-value check on the purchase price. Paste a listing link to see whether a given property pencils out.