Real estate investing math is not complicated, but it is specific. The investors who make consistent money understand four core numbers cold: cash flow, cap rate, cash-on-cash return, and DSCR. They can calculate all four on any deal in minutes. They know what good looks like, what marginal looks like, and when to walk away. This guide covers all four — and how they connect to the financing that makes the investment possible.
The Four Numbers Every Investor Must Know
Before analyzing any deal, understand what each metric measures and what it does not:
1. Cash Flow — What You Actually Put in Your Pocket
Monthly Cash Flow = Gross Rent − Vacancy − Operating Expenses − Mortgage Payment
This is the number you live on. Positive cash flow means the property pays you after all expenses. Negative cash flow means you are subsidizing the property from other income. Target: $200-500+/month minimum for the property to be worth managing.
2. Cap Rate — Return Independent of Financing
Cap Rate = Net Operating Income ÷ Property Value
NOI = Gross Rent × (1 − Vacancy Rate) − Operating Expenses (no mortgage)
Cap rate tells you what the property earns independent of how you financed it. It allows fair comparison between properties regardless of down payment or loan terms. A 6% cap rate means the property generates 6% of its value annually before debt service.
3. Cash-on-Cash Return — ROI on Your Invested Capital
Cash-on-Cash = Annual Cash Flow ÷ Total Cash Invested
Total cash invested = Down payment + Closing costs + Repairs
If you put $75,000 into a deal and it generates $6,000/year in cash flow, your cash-on-cash return is 8%. This is the number that tells you whether your capital is working hard enough.
4. DSCR — Whether the Property Qualifies for Financing
DSCR = Monthly Gross Rent ÷ Monthly PITIA
DSCR is the lender's number. It tells them whether the property generates enough income to cover its own mortgage payment. Your analysis should always include DSCR as a check on whether financing is available at the loan amount you need.
A Complete Deal Analysis Example
Walking through a real deal — a $235,000 Columbus, Ohio single-family:
- Gross rent: $1,800/month
- Down payment: 25% = $58,750
- Loan amount: $176,250 at 7.25% DSCR
- Monthly P&I: $1,202
- Taxes: $280/month
- Insurance: $110/month
- PITIA: $1,592
- DSCR: $1,800 ÷ $1,592 = 1.13 ✓ qualifies
- Vacancy (5%): $90/month
- Management (9%): $162/month
- Maintenance reserve (6%): $108/month
- Total operating expenses (excl mortgage): $360 + $280 + $110 = $750/month
- NOI: ($1,800 − $90) − ($280 + $110 + $162 + $108) = $1,710 − $660 = $1,050/month = $12,600/year
- Cap rate: $12,600 ÷ $235,000 = 5.36%
- Monthly cash flow: $1,050 − $1,202 (P&I) = −$152/month
Wait — negative cash flow? This deal does not cash flow at 7.25% with 25% down. The DSCR qualifies (1.13) but the actual cash flow after management and maintenance reserves is negative. This illustrates why DSCR qualification and actual investor cash flow are different numbers. Use the Deal Analyzer at viadorpartners.com/deal-analyzer.html to run this analysis on any property.
What Makes a Deal Actually Work
The Columbus deal above shows why deal selection matters as much as financing. To make it cash flow positive:
- Buy at $195,000 instead of $235,000 — lower payment, same rent → +$267/month cash flow
- Or put 30% down instead of 25% — lower payment → +$84/month cash flow + better DSCR
- Or find a property renting for $2,000/month instead of $1,800 — same payment → +$200/month
- Or all three combined → significant positive cash flow
The numbers tell you exactly what needs to change. Deal analysis is not about getting attached to a property — it's about finding the ones where the math actually works.
Frequently Asked Questions
Most investors target a minimum of $200-400/month in net cash flow after all expenses including mortgage, taxes, insurance, management, maintenance reserves, and vacancy allowance. Less than $200/month makes the property difficult to justify given management time and risk. More than $500/month is excellent by 2026 standards in most markets.
5-6% is typical for stable markets like Columbus and suburban Tampa Bay. 6-8% is strong and found in secondary markets. 8%+ is excellent and usually indicates a higher-management property in a value market like Cleveland or Toledo. Cap rates below 5% suggest appreciation-focused markets where cash flow is secondary.
Most investors target 6-10% cash-on-cash. 8%+ is considered strong. Below 5% is marginal and suggests either overpaying, under-renting, or taking on excessive expenses. The target varies by investor — some accept lower cash-on-cash for stronger appreciation markets.
DSCR measures whether the property covers its mortgage payment (lender's perspective). Cash flow measures what you actually keep after all expenses (investor's perspective). A property can have a strong DSCR (1.25) but negative cash flow after management, maintenance, and vacancy expenses. Always calculate both.
Viador Partners offers a free DSCR calculator at viadorpartners.com/dscr-calculator.html and a full deal analyzer (cap rate, cash flow, 5-year projection) at viadorpartners.com/deal-analyzer.html.
The most commonly overlooked: property management (8-10% of rent), maintenance reserves (5-8% of rent), vacancy allowance (5-8%), capital expenditure reserves (HVAC, roof, plumbing), and landlord insurance vs homeowner insurance (different product, different cost).