What the four numbers mean
- Cap rate = NOI ÷ price. What the property yields unlevered - useful for comparing deals and reading a market.
- DSCR = NOI ÷ annual debt service. Lenders want this above ~1.20–1.25; below 1.0 the rent doesn't cover the loan.
- Cash-on-cash = annual cash flow ÷ cash invested. Your actual return on the money you put in.
- Monthly cash flow = (NOI − debt service) ÷ 12. What lands in your pocket after the mortgage.
Frequently asked questions
What is a good cap rate for a rental?
It depends on the market and risk - many buy-and-hold investors look for 5–8%, but a "good" cap rate is one that beats safer alternatives after honest expenses. Compare it to recent sales of similar properties nearby.
What DSCR do lenders want?
Most rental and DSCR-loan lenders want a debt-service coverage ratio of at least 1.20–1.25, meaning NOI is 20–25% above the loan payment. Agency multifamily standards are similar.
Why use expenses as a percentage of rent?
It's a fast screen. Many operators assume operating expenses run 35–50% of collected rent; once a deal looks promising, replace the percentage with real line items (taxes, insurance, management, maintenance, reserves).