RightFiguresStart from vacancy and a cash-flow target
This page solves for monthly gross rent. You enter the vacancy, the annual operating expenses, the annual loan payment and the cash flow you want left. It does not ask for a purchase price or a cap rate.
Effective rent is annual gross rent times the occupied share, rounded half up to the nearest cent. Occupied is 100% minus the vacancy you enter. The cash-flow rent is the lowest monthly rent whose effective rent covers operating expenses, the loan payment and the target. The pre-debt rent is the lowest monthly rent that covers operating expenses and the target before the loan payment.
Lesson 8 describes net operating income and capitalization. This page does not divide income by a price. IRS Publication 527 discusses rental income and expenses. The rent here is not a market rent and not taxable income.
The income figures use the cash-flow rent
At 5% vacancy, $6,000.00 of operating expenses, $12,000.00 of loan payments and a $4,800.00 target, the cash-flow rent is $2,000.00 a month. Annual gross rent is $24,000.00, effective rent is $22,800.00, net operating income is $16,800.00, and cash flow is $4,800.00. One cent less rent collects $22,799.89, which is short of the $22,800.00 need.
Before the loan payment, the same $4,800.00 target needs $947.37 a month. That rent collects $10,800.02 before debt service. It is a comparison only. The income breakdown does not use it.
That $2,000.00 rent and $4,800.00 cash flow match the published example on the rental property ROI calculator. This page does not ask for the $300,000.00 price, and it does not report the 5.60% cap rate. A price you already know still belongs on the cap rate calculator.
Zero, and a vacancy that collects nothing
If expenses, loan payments and the target are all $0.00, the rent is $0.00 at any vacancy. At 100% vacancy, occupied is zero, so effective rent is $0.00 at every rent. A need above zero then has no qualifying rent. Lower the vacancy, or lower the expenses, loan payments or target.
The occupancy that covers a rent you already know is on the break-even occupancy calculator.
Sources & review
- Lesson 8, Capitalization — California State Board of Equalization
- Publication 527, Residential Rental Property — Internal Revenue Service
Last reviewed: . The formula is reproduced above so you can check the math independently.
Educational estimate only. This rent is not a market quote or a cap rate.