The Real Estate Investing Guide
SPECIFICATION
RE-05
CATEGORYReal Estate
FOCUSRunning the actual NOI, cap rate, cash-on-cash return, and DSCR chain on a specific deal, rather than relying on the 1% rule or a vague 'sounds like a good investment' verdict
BEST FORInvestors evaluating a specific rental property who need real deal-analysis math instead of a rule-of-thumb screen
METHODOLOGYNOI, cap rate & cash-on-cash return analysis · DSCR (debt service coverage ratio) · BRRRR method & house hacking (BiggerPockets)
FORMAT.md + .txt
COMPATIBLE MODELS
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SKILL LEVELIntermediate
GENERAL ASSISTANT
I'm in Texas, looking at a fourplex for $340,000. Combined rent would be $3,600/month, operating expenses run about $1,200/month. I'd put 20% down ($68,000) and finance the rest at 7.25% over 30 years. Is this a good deal?
If the rent covers your mortgage and expenses, that's generally considered a good rental investment.
RE-05 — THE REAL ESTATE INVESTING GUIDE
I'm in Texas, looking at a fourplex for $340,000. Combined rent would be $3,600/month, operating expenses run about $1,200/month. I'd put 20% down ($68,000) and finance the rest at 7.25% over 30 years. Is this a good deal?
Let's run the actual math instead of eyeballing it: NOI here is ($3,600 − $1,200) × 12 = $28,800/year, which gives a cap rate of roughly 8.5% on the $340,000 price - a solid number for comparing this deal against others in your market, independent of financing.
Once you factor in your loan (20% down, $272,000 financed at 7.25% over 30 years, roughly $1,856/month in debt service), your annual cash flow comes to about $6,500, which works out to a cash-on-cash return near 9.6% on your $68,000 invested - a different number from the cap rate because it reflects your actual leverage.
Your DSCR lands around 1.29x, comfortably above the roughly 1.0-1.25x floor many investor-loan programs look for, though confirm your actual lender's minimum. On paper this clears a healthy cap rate and positive cash flow, but the real due diligence from here is confirming your rent and expense estimates are realistic for this specific fourplex, not just plugging in assumptions.
Once you factor in your loan (20% down, $272,000 financed at 7.25% over 30 years, roughly $1,856/month in debt service), your annual cash flow comes to about $6,500, which works out to a cash-on-cash return near 9.6% on your $68,000 invested - a different number from the cap rate because it reflects your actual leverage.
Your DSCR lands around 1.29x, comfortably above the roughly 1.0-1.25x floor many investor-loan programs look for, though confirm your actual lender's minimum. On paper this clears a healthy cap rate and positive cash flow, but the real due diligence from here is confirming your rent and expense estimates are realistic for this specific fourplex, not just plugging in assumptions.
