Most investors lose money not because they picked the wrong market — but because they didn't run the numbers correctly before buying. This guide walks you through every metric that matters: NOI, cap rate, DSCR, cash-on-cash return, and the 50% rule.
Start with actual market rents — not the listing's optimistic pro forma. Pull rent comps from similar properties within 0.5 miles. For Section 8, check HUD Fair Market Rents for the zip code. Apply a 5–8% vacancy factor for stabilized markets, 10–12% for transitional ones.
NOI is the income after operating expenses, before debt service. Common expenses: property taxes, insurance, property management (8–10%), maintenance (5–10% of rent), CapEx reserve (5–8%), and vacancy. Do NOT include mortgage payments in NOI — NOI is property-level, not investor-level.
Cap rate tells you the unleveraged return on the asset. It's how commercial brokers value property and how you compare markets. A 7% cap in Cleveland is not the same as a 7% cap in Miami — market risk and appreciation potential differ. For cash flow investing, target 7%+ cap rates.
DSCR is used by lenders to qualify your loan and by investors to evaluate deal quality. A DSCR above 1.25 means the property generates 25% more income than its debt service — strong. Below 1.0 means the rent doesn't cover the mortgage. Use DSCR loans (no W-2 required) for rental investing.
CoC measures the annual cash flow you receive relative to the actual cash you invested (down payment + closing costs + rehab). This is your personal return. A 10%+ CoC is considered strong. BRRRR deals can produce infinite CoC if you recover 100% of your capital at refinance.
The 50% rule estimates operating expenses at 50% of gross rent — taxes, insurance, management, maintenance, CapEx, vacancy. It's a rough filter, not a pro forma. If 50% of rent minus your P&I payment is positive, the deal may work. Use it to eliminate obvious losers in seconds.
Verleon AI runs these calculations on every listing automatically — DSCR, NOI, cap rate, and cash flow — so you only look at properties that already pass your buy box.
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