Rental property calculator: cap rate, cash-on-cash, DSCR and IRR explained, and why one property can pass three of them and fail the fourth

Four numbers get quoted on every rental listing and every forum thread: cap rate, cash-on-cash return, DSCR and IRR. They are not four ways of saying the same thing. Each one answers a different question, and a property routinely looks good on one and poor on another. This page says what each measures, in plain words, and shows a worked case where they disagree.

Cap rate: the property on its own

The capitalisation rate is the year's net operating income as a share of what the property is worth. JPMorgan's commercial term lending team describes it as "calculated by dividing a property's net operating income by its asset value, the cap rate is an assessment of the yield of a property over one year" (source 1). Net operating income is rent and other income after vacancy and every operating cost, and before any loan payment (source 2).

Because the loan is not in it, cap rate compares properties, not deals. Two buyers with different mortgages see the same cap rate. That is its use and its limit: it says nothing about what your own cash earns.

The Bindler analyzer shows two versions. The purchase cap rate divides year one NOI by the price. The all-in cap rate divides it by price plus closing costs plus initial repairs, which is what you actually paid.

Cash-on-cash: your cash, this year

Cash-on-cash return is the year's cash flow after the loan payment as a share of the cash you put in (down payment, closing costs, repairs). It is the number a leveraged buyer feels. It can be negative in year one on a property with a perfectly ordinary cap rate, because the mortgage payment is fixed while the rent starts low and grows.

DSCR: the lender's question

The debt service coverage ratio is NOI over the year's loan payments. Corporate Finance Institute puts it as a metric for "how easily a company's operating cash flow can cover its annual interest and principal obligations", notes that a ratio under 1.0 means the asset "owes more money to creditors (per year) than it generates in cash per year", and reports that "most commercial banks and equipment finance firms want to see a minimum of 1.25x" (source 3). Residential and buy-to-let lenders set their own floors, but the shape is the same: below 1.0 the rent does not cover the mortgage, and a buyer is subsidising the property from salary.

IRR: the whole hold, including the sale

Cap rate, cash-on-cash and DSCR are all single-year figures. The internal rate of return is the one number that takes the whole holding period into account: the cash invested at the start, every year's cash flow, and the net sale proceeds (value after appreciation, less selling costs, less the loan balance) in the year you sell. It is the only one of the four where appreciation and principal paydown show up. That is why a property with thin cash flow can still post a respectable IRR, and why an IRR on its own hides a decade of negative months.

The sample case, all four at once

The free calculator and the workbook share one illustrative property: a $350,000 purchase with $7,000 closing costs and $10,000 of initial repairs, 25% down, a 30-year loan at 6.75%, $2,800 rent plus $50 other income, 5% vacancy, the usual expense lines, 3% rent growth, 2.5% expense growth, 3% appreciation, a ten-year hold and 6% selling costs. Every figure below was recalculated with a formula engine and matched to an independent Python replica before listing; the verify log is in the product folder.

• Purchase cap rate 5.49%, all-in cap rate 5.24%. Nothing alarming.
• Gross rent multiplier 10.2, and monthly rent is 0.80% of price, so it fails the folk "1% rule".
• Year one NOI $19,223, year one cash flow before tax minus $1,208. Cash-on-cash in year one is minus 1.16%.
• DSCR in year one is 0.94. The rent does not cover the mortgage. Break-even occupancy is 98.5%, so one vacant month tips the year.
• Over the ten-year hold: $104,500 of cash invested, $17,701 of cumulative cash flow, net sale proceeds of $218,233, an equity multiple of 2.26 and an IRR of 8.57% before tax.

That is the finding worth remembering. The cap rate is unremarkable, the cash-on-cash is negative, a lender would decline the DSCR, and the IRR is 8.6%, almost all of it from appreciation and paying down the loan. Whether that is a good deal depends on which of the four questions you are asking, and on whether you believe 3% appreciation for ten years. Change that one input and the IRR moves more than any other assumption does.

Try it before you buy anything

The free rental property calculator runs this case in your browser and takes your own inputs; it returns the metrics for one property, no sign-up. It does not show the month-by-month amortisation or the thirty-year projection, and it does not save your work.

The Rental Property Analyzer workbook does: Inputs, a 360-month Amortisation sheet, a 30-year Projection with every expense line, NOI, debt service split into interest and principal, property value, loan balance and equity, and a Metrics sheet with all fourteen figures above and the IRR cash flow series laid out beside them so you can see what it is computed from. Live formulas, no macros, no locked cells, Excel and Google Sheets. $24, one price.

It is before income tax. Depreciation, tax on sale, refinancing and rate resets are outside it, and its Guide sheet says so. Arithmetic on your assumptions, not investment, tax or legal advice.

Sources

1. JPMorgan, "Cap rates, explained": https://www.jpmorgan.com/insights/real-estate/commercial-term-lending/cap-rates-explained

2. Corporate Finance Institute, "Capitalization rate": https://corporatefinanceinstitute.com/resources/valuation/capitalization-cap-rate/

3. Corporate Finance Institute, "Debt service coverage ratio": https://corporatefinanceinstitute.com/resources/commercial-lending/debt-service-coverage-ratio/

4. Bindler, Rental Property Analyzer specification and verification log (products/rental-analyzer/spec.json and verify.py), figures as listed 27 September 2026.

Last checked against the sources on 28 September 2026.