Rental Yield Calculator — Cap Rate, Cash-on-Cash Return, Gross Yield

Purchase price

Cash invested (down + closing)

Monthly rent

Annual operating expenses

50% rule: ~50% of gross rent

Annual debt service (P&I)

0 if cash purchase

Expected appreciation

%/yr

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How to use

1 Enter purchase price, down payment, and any closing costs (typically 2-5% of price).
2 Enter monthly rent collected and annual operating expenses: property tax, insurance, HOA, vacancy allowance (5-10%), maintenance (1-2% of value), property management (8-12% of rent if you outsource).
3 Enter mortgage payment if financed (use US Mortgage Calculator for principal & interest).
4 Click Calculate to see gross yield, net yield, cap rate, and cash-on-cash return.
5 Compare to alternatives: 4% safe withdrawal rate from index fund, current 10-year Treasury (~4.3%), HYSA (~4-5%). Rental property should beat these to justify the work.

Four US Rental Property Return Metrics

Metric	Formula	Use case
Gross Yield	Annual rent ÷ purchase price	Quick screening; ignores expenses
Net Yield	(Annual rent − operating expenses) ÷ price	Better picture, still ignores financing
Cap Rate	NOI ÷ property value	Industry standard; comparing similar properties
Cash-on-Cash Return	Annual cash flow ÷ actual cash invested	Best metric for leveraged investors
Total Return (incl. appreciation)	Cash flow + appreciation + principal paydown	Long-term holistic measure

2026 US Rental Cap Rates by Market

Market type	Typical cap rate
NYC, SF, Boston (gateway)	3-4%
LA, Seattle, DC	4-5%
Atlanta, Phoenix, Denver, Austin	5-6%
Tampa, Charlotte, Nashville	5-7%
Cleveland, Memphis, Indianapolis	7-10%
Detroit (high-cap, high-risk)	10-15%+

The 1% Rule and 50% Rule

1% Rule: Monthly rent ≥ 1% of purchase price (12% gross yield). A $200K rental should generate $2,000+ monthly. Helpful screening for cash-flow positive properties; hard to find in major metros 2026. 50% Rule: Operating expenses (excluding mortgage) typically equal ~50% of rent. So $2,000/month rent → ~$1,000/month expenses → ~$1,000/month NOI before mortgage. Both are rough heuristics, not substitutes for actual analysis.

Operating Expenses to Include

Expense	Typical annual amount
Property tax	0.5-2.5% of value
Homeowners insurance	0.3-1.0% of value
Vacancy allowance	5-10% of gross rent
Maintenance & repairs	1-2% of value
Property management	8-12% of gross rent
HOA fees (if applicable)	$1,200-$15,000/year
Capital expenditures (CapEx)	5-10% of rent reserved

Tax Treatment of Rental Income

Rental income is reported on Schedule E. Mortgage interest, property tax, insurance, repairs, depreciation (27.5-year straight-line on building portion), and management fees are deductible. Net loss can offset other rental income; up to $25K can offset ordinary income for active participants under $100K AGI. Section 1031 exchange allows tax-deferred swap to another investment property. Consult CPA familiar with real estate.

FAQ

Q What is a good cap rate for a rental property?

Depends on market. Major coastal metros (NYC, SF, Boston): 3-4% caps reflect appreciation expectations. Sun Belt secondary markets: 5-7%. Industrial/Rust Belt: 7-12%. Higher cap rates compensate for lower appreciation, higher tenant turnover, or property management challenges. Most US investors aim for 5-8% cap rate.

Q How is cap rate different from cash-on-cash return?

Cap rate uses Net Operating Income (NOI) ÷ property value — ignores financing. Cash-on-cash uses annual cash flow ÷ actual cash invested — accounts for mortgage. So a 5% cap property with 25% down can produce 8-12% cash-on-cash return through leverage. Both are useful: cap rate compares properties; cash-on-cash compares to other investments.

Q What is the 1% rule?

Monthly rent should be at least 1% of purchase price for the property to cash flow well. A $200K rental needs $2,000+ monthly rent. Useful screening shortcut — but in 2026 high-priced markets, many investors compromise to 0.6-0.8%, betting on appreciation. The 1% rule still works well in mid-tier and Sun Belt markets.

Q How much should I budget for rental property expenses?

The 50% Rule: roughly 50% of rent goes to operating expenses (taxes, insurance, vacancy, maintenance, management) before mortgage. So $2,000/month rent typically yields ~$1,000/month NOI. Older properties, far-away properties, and expensive markets often run higher. Always model actual expenses for your specific deal — the 50% rule is a sanity check, not a budget.

Q Should I use a property manager?

Property management costs 8-12% of gross rent in most US markets. Worth it if: (1) you live far from the property; (2) you have multiple rentals; (3) your hourly value exceeds management cost; (4) you can't handle 3 AM emergency calls. Self-management saves money but costs time. Many investors start self-managing 1-3 properties, hire managers as portfolio grows.

Q How does rental property compare to index fund investing?

Rental: 6-10% cash-on-cash + 3-5% appreciation + 2-3% principal paydown = ~10-18% total return potentially, but requires active management, leverage risk, illiquidity, tenant headaches. S&P 500: ~10% historical, fully passive, fully liquid. Rental wins on tax advantages (depreciation, 1031) and forced savings; index funds win on simplicity. Many wealth advisors recommend mix.

Q What is depreciation on rental property?

IRS allows straight-line depreciation of the building (not land) over 27.5 years for residential rentals. So a $400K property with $80K land allocation and $320K building depreciates $11,636/year as paper loss. Significant tax shield — often makes rentals show paper loss while generating positive cash flow. Subject to recapture (taxed as ordinary income up to 25%) when sold.

Q Can I 1031 exchange to defer taxes?

Yes — Section 1031 of IRS code allows tax-deferred exchange of investment real estate for another investment real estate. Strict timeline: identify replacement property within 45 days; close within 180 days. Use a Qualified Intermediary to hold proceeds. Powerful tool for upgrading from small to large properties without paying capital gains. Personal residences don't qualify (use Section 121 exclusion instead).