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Rental Property Cash Flow and Cap Rate Calculator

Master the foundational math of real estate investing. This calculator provides a crucial financial check before you buy, instantly projecting your **Net Monthly Cash Flow** (profitability) and the **Capitalization Rate** (Cap Rate), which measures the unlevered rate of return on the property price. Use this tool to quickly screen properties and build your passive income portfolio.

Income Metrics (Annual)

Gross Annual Rental Income (Rs) Vacancy Rate (%) (Typical: 5%-10%) Other Annual Income (e.g., Laundry, Parking) (Rs)

Expense Metrics (Annual)

Annual Operating Expenses (Property Management, Repairs, etc.) (Rs) Annual Property Tax (Rs) Annual Insurance Cost (Rs)

Financing & Acquisition Metrics

Property Purchase Price (Rs) Down Payment (%) Mortgage Interest Rate (%) Loan Term (Years)

Key Investment Analysis Results

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The Two Non-Negotiable Metrics for Real Estate Investment

In the world of passive income through real estate, you must know two things before committing capital: **Cash Flow** and **Cap Rate**. Cash flow tells you if the asset is a liability or a profit center on a monthly basis. Cap Rate tells you what kind of return the property is generating relative to the purchase price, ignoring any financing. If both of these metrics pass your initial screening, you have a solid investment candidate.

1. The Monthly Cash Flow (The Liquidity Test)

Cash flow is the lifeblood of any rental investment. It is the net money left in your pocket after all income and all expenses, including the debt payment, are accounted for. Positive cash flow means your tenant is paying the mortgage, expenses, and leaving you with a profit. Negative cash flow means you are subsidizing the tenant every month, hoping for long-term appreciation to bail you out (a risky strategy).

The formula for Monthly Cash Flow is: $$\text{Monthly Cash Flow} = (\text{Gross Rent} - \text{Vacancy Loss} + \text{Other Income}) - \text{Total Monthly Expenses} - \text{Monthly Mortgage Payment}$$

Crucial components included in this calculation:

• **Vacancy Loss:** Even the best properties have downtime. We calculate this by multiplying the Gross Annual Rent by the estimated Vacancy Rate percentage.
• **Total Monthly Expenses:** This includes property taxes, insurance, routine maintenance, HOA fees, and property management fees. Investors should budget at least $10\%-15\%$ of gross rent for operating expenses.
• **Monthly Mortgage Payment:** This is calculated using the standard amortization formula based on the loan principal (Property Price - Down Payment), interest rate, and term.

**The Rule of Thumb:** Many experienced investors look for properties that generate at least Rs 10,000 to Rs 20,000 in positive cash flow per month.

2. The Capitalization Rate (Cap Rate) (The Return on Investment Test)

The Cap Rate is a metric used to compare one property to another in the same market, completely ignoring how the property is financed (i.e., whether you use a mortgage or pay all cash). It measures the property's annual unlevered return on investment.

The formula for Cap Rate is: $$\text{Cap Rate} = \frac{\text{Net Operating Income (NOI)}}{\text{Property Price}}$$

Where **Net Operating Income (NOI)** is the gross rental income minus all annual operating expenses (but *before* mortgage payments, as Cap Rate is unlevered).

• **Why it matters:** A Cap Rate allows you to quickly compare a $5,000,000 property to a $10,000,000 property in the same city. If both have a $6\%$ Cap Rate, they are equally efficient investments, even though their cash flows will differ due to different mortgage payments.
• **The Rule of Thumb:** Cap Rates vary significantly by market. In stable, high-cost cities, a $4\%$ Cap Rate may be acceptable, while in emerging, higher-risk markets, investors demand an $8\%$ or higher Cap Rate to justify the risk.

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