Underwrite a rental like an investor.
Three rings: cap rate (unlevered yield), cash-on-cash (levered), and DSCR (will the bank like it). Get all three with one set of inputs.
Built and reviewed by Stephen Omukoko Okoth
Mathematical Economist · ex-Morgan Stanley FI · Equilar
Property
Acquisition
Income
Rent & operations
Financing
The mortgage
Verdict
5.6% cap rate • -1.5% cash-on-cash
Deal does not service debt — NOI below the mortgage payment.
Cap rate is the property's unlevered yield. Cash-on-cash is what you actually pocket per dollar invested. DSCR is the lender's view: ratio of operating income to debt service.
Result
The full underwriting
NOI (annual)
$ 25.1K
Net Operating Income
Cap rate
5.6%
Cash invested
$ 120.5K
Cash-on-cash
-1.5%
Annual cash flow
-$ 1.8K
DSCR
0.93
Lender threshold ~1.25
Monthly payment
$ 2,245
GRM (gross rent multiplier)
10.7
Lower = better — price ÷ annual rent
Common questions
What is a cap rate?
Capitalization rate = annual net operating income (NOI) divided by property price. It's an unlevered yield — what the property earns before any mortgage. A 7% cap rate means you'd recover the price in ~14 years from operating income alone.
Cap rate vs cash-on-cash — what's the difference?
Cap rate is unlevered; cash-on-cash is levered. Cash-on-cash = annual pre-tax cash flow ÷ cash invested (down payment + closing). Mortgages amplify both upside and downside; the higher the leverage, the more cash-on-cash diverges from cap rate.
What's a 'good' cap rate?
It depends on the market and asset class. Class A urban: 4-6%. Suburban Class B: 6-8%. Secondary markets, value-add: 8-12%. Anything above 12% almost always has a catch — distressed area, deferred maintenance, regulatory risk.
What is DSCR?
Debt Service Coverage Ratio = NOI ÷ annual debt service. Lenders typically want 1.20–1.35x for residential rentals, higher for commercial. Below 1.0 means the property doesn't earn enough to cover the loan — the deal is broken.