What numbers do you look at first when analyzing a rental property?

Question

I’m curious how other investors approach the initial analysis of a rental property.

When you first look at a potential rental, which numbers do you check before going deeper into the deal?

For me, the main areas seem to be purchase price, expected rental income, operating expenses, vacancy, maintenance, CapEx, and estimated cash flow.

I’m especially interested in how experienced investors decide whether a property is worth analyzing further. Do you start with cash flow, cash-on-cash return, the purchase price compared with market value, or something else?

Also, how do you account for unexpected expenses when doing the initial numbers?

Divin Kanyama · Answer

You are looking at the right categories, @Halenah Eva . My first pass is usually less about finding the perfect return and more about identifying a reason to stop. I compare realistic rent—not the seller’s projection—with taxes, insurance, management, vacancy, routine maintenance, utilities paid by the owner, and a property-specific CapEx allowance. From there, I look at monthly cash flow, debt-service coverage, and cash-on-cash return based on the total cash invested, including closing costs and immediate repairs.

I also compare the purchase price with recent sales and the property’s stabilized value, but appreciation is a bonus rather than the reason a weak cash-flow deal works. If the property fails under conservative rent, current financing terms, and professional management—even if I expect to self-manage—I generally do not spend much more time on it.

For surprises, I separate ongoing reserves from the initial repair budget. I estimate maintenance and CapEx from the age and condition of the roof, HVAC, plumbing, electrical system, and appliances, then add a contingency for items the inspection may miss. I also stress-test the deal for a vacancy, a major repair, or rent coming in below expectations. If one ordinary setback wipes out the annual return, the margin is probably too thin. The exact thresholds vary by market and strategy, but conservative assumptions make it much easier to decide which properties deserve deeper due diligence.

Simple example: Assume a property costs $200,000, requires $10,000 of immediate repairs, and rents for $2,000 per month. Gross annual rent is $24,000. If vacancy is 5% ($1,200), taxes and insurance are $3,600, management is 8% of collected rent (about $1,824), and maintenance and CapEx reserves total $2,400, estimated net operating income is about $14,976 per year. With annual mortgage payments of $12,000, projected cash flow is about $2,976 per year, or $248 per month. If the total cash invested for the down payment, closing costs, and repairs is $55,000, the estimated cash-on-cash return is about 5.4%. I would then test the deal with lower rent, a longer vacancy, or a major repair to see whether the return still feels worthwhile. Since financing terms, expenses, and return targets vary by property and investor, I would treat this as a screening example and verify the assumptions against the actual deal before moving forward.

Alev Sharma · Answer

Good question, and in LA the order matters because most properties fail the very first test.

My quick filter, in this order:

1) Rent vs. total monthly payment. I estimate market rent from recent leases (not asking rents) and compare it to PITI at today's rates. If rent doesn't cover PITI plus roughly 25-30% for everything else, I need a clear value-add angle or I pass.

2) Property tax at the new price. In California the tax resets when you buy, to roughly 1.1-1.25% of the price depending on the area, plus any bonds or special assessments. A lot of new investors plug in the seller's old tax bill, which can be a fraction of what they'll actually pay.

3) Insurance. Get a real quote early, especially in fire-exposed areas. It has moved more than any other expense lately.

4) Price vs. comps. In LA a big part of the return comes from equity and value-add, so buying at or below market matters more than a thin monthly number.

5) Upside. Lot size and zoning for an ADU, unpermitted space that could be legalized, or below-market rents.

For unexpected expenses I use separate line items instead of one fudge factor: about 5% vacancy, 5-8% repairs, 5-10% CapEx depending on the age of the roof, plumbing and electrical, and a management fee even if I self-manage. On older LA housing stock I also scope the sewer line and look hard at the electrical panel and foundation before trusting any of the numbers.

Last thing: confirm early whether local rent rules apply to the property, since that changes how quickly rents can get to market.

Shiloh Lundahl · Answer

This is how I analyze every deal within a minute that comes to me. And this is in order.

1st - location. Is it located in an area where I buy.

2nd - what is the price point. Is it priced at an amount that I would buy?

3nd - look at pictures and read the description to see what it would likely cost to fix up the property.

4th - Ask the condition of these 7 things (roof, HVAC, electrical, foundation, plumbing, windows, smell).

5th - I tell them what I can buy it for and see if they accept.

Right now my decision to buy the property is dependent on if I can make $30,000 on a flip or walk into 20% equity if it is a buy and hold.

What numbers do you look at first when analyzing a rental property?

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