How to Analyze a Rental Property in 15 Minutes (With Real Numbers)

Why a 15 minute screen beats a two hour spreadsheet

Most listings do not deserve a full underwriting model. A fast screen eliminates weak properties in minutes, so your deeper analysis goes only to deals that clear the bar. The sequence below uses numbers you can pull from the listing, the county tax record, and a basic loan quote.

The nine numbers to pull, in order

1. Purchase price and list history. Note the asking price, days on market, and any price cuts. Repeated cuts often signal a seller who will negotiate.
2. Gross monthly rent. Use signed leases or a rent roll if you can get one. If not, use comparable rentals, never the seller's pro forma.
3. Annual gross rent. Multiply monthly rent by 12.
4. Property taxes. Check the county assessor, and assume the taxes will reset to the purchase price after the sale.
5. Insurance. Get a real quote for the address. Flood zones and older roofs can change this number dramatically.
6. Operating expenses. Add vacancy, repairs, capital reserves, management, and any utilities the owner pays. Use percentages of rent when you lack history.
7. Net operating income (NOI). Gross rent minus operating expenses, before the mortgage.
8. Debt service. Use a current loan quote for your down payment and rate, then compute annual principal and interest.
9. Cash flow and returns. Subtract debt service from NOI, then divide by the cash you invest.

You can run the same math in our rental cash flow calculator once you have the inputs.

Worked example: a duplex at $320,000

Say a duplex lists at $320,000 with two units each renting for $2,200 per month. Gross rent is $4,400 per month, or $52,800 per year. Assume these expenses:

• Property taxes: $4,000 per year
• Insurance: $1,800 per year
• Water, sewer, and trash: $1,200 per year
• Vacancy at 5 percent of gross rent: $2,640
• Repairs at 5 percent: $2,640
• Capital reserves at 5 percent: $2,640
• Management at 8 percent: $4,224

Total operating expenses come to $19,144, leaving NOI of $33,656. The cap rate is 10.5 percent ($33,656 divided by $320,000).

For financing, a 20 percent down payment is $64,000, leaving a $256,000 loan at 7 percent over 30 years. Principal and interest runs about $1,703 per month, or $20,436 per year. Annual cash flow before taxes is $13,220, roughly $1,102 per month. With closing costs of about $6,000, your total cash in is $70,000, a cash on cash return near 18.9 percent. The debt service coverage ratio (NOI divided by debt service) is 1.65.

Go/no-go thresholds

If a deal only works when vacancy is zero and repairs are ignored, it does not work.

Use these checks as hard filters:

• Monthly cash flow after every expense is positive, with a cushion of at least $150 per unit in most markets.
• DSCR is at or above 1.25. Lenders typically look for coverage in this range, and it leaves room for surprises.
• Cash on cash return meets a target you set before you look. Decide your number in advance so a pretty kitchen cannot talk you out of it.
• Cap rate sits clearly above your loan rate. If the cap rate is below the cost of borrowing, leverage works against you.

The 1 percent rule, where monthly rent is at least 1 percent of the purchase price, is a useful first screen but not a verdict. Treat it as a reason to keep digging, not a reason to buy.

A dud, in the same 15 minutes

Say a three bedroom house lists at $285,000 and rents for $1,650 per month. The 1 percent rule requires $2,850, so it fails at a glance. Run the rest anyway. Taxes and insurance run about $600 per month, and vacancy, repairs, and reserves add roughly $250 more, leaving about $800 of NOI. A $228,000 loan at 20 percent down and 7 percent costs about $1,517 per month in principal and interest. The property loses roughly $700 every month. It might appreciate, but it is not a cash flow deal, and you learned that in under fifteen minutes.

Make it a habit

Pick one listing you are already watching and run all nine steps before you look at the photos. The spreadsheet matters less than the habit of checking the numbers first.