How to analyze a rental property

To analyze a rental property, estimate the income it can realistically earn, subtract every cost of running it to get net operating income (NOI), subtract the loan payments to get cash flow, and compare that cash flow with the cash you put in and the risks you take on. Rules of thumb are for screening; the decision comes from the full numbers.

Below, the whole method runs on one example: a $400,000 single-family house, analyzed as a long-term rental and as a short-term rental. Every other guide in this section reuses the same deal, so the figures agree from page to page.

The sample deal used in these guides

This is an example, not a forecast, a quote or a typical result. The rate is an example rate, and every cost is an assumption you would replace with real figures for a real address.

The running costs, also assumptions:

• Long-term: vacancy at 5% of rent, management at 8% of the rent collected, repairs at 5% of rent, a capital expenditure (capex) reserve at 5% of rent. The tenant pays the utilities.
• Short-term: the platform's fee at 15.5% of bookings (Airbnb's host-only fee, which it is moving most hosts onto), a co-host or manager at 20% of the payout after that fee, utilities and internet at $350 a month, supplies at $100 a month, repairs at 5% of bookings, a capex and furnishing reserve at 5%, and $600 a year for the permit, license and software. Cleaning fees guests pay are assumed to cover the cleaner, so both are left out. Occupancy taxes are collected from guests and passed to the city, so they are left out too.

Step 1: Screen it in two minutes

Before you spend an hour, run the quick screens. They tell you whether a deal deserves a full look, not whether to buy it.

• The 1% rule: monthly rent of at least 1% of the price. As a long-term rental, the house rents for $3,000, which is 0.75% of $400,000, so it fails. As a short-term rental it grosses $6,000 a month on average, 1.5%, so it passes, but on revenue that carries far higher costs.
• The 50% rule: assume operating costs eat half the gross rent. Half of $36,000 leaves $18,000 of NOI, against $25,171.68 a year of loan payments. The screen says the long-term version will not cash flow at this price and rate.

Both screens are blunt, and the 1% rule and its cousins explain where they mislead. A fail is not a no. It means the full analysis has to find a reason, such as appreciation, a value-add plan or a different use.

Step 2: How do you estimate rental income?

Income is where most bad analyses go wrong, because it is the easiest number to be hopeful about.

Long-term rent

Find three to six comparable rentals: same bedroom and bathroom count, similar size, condition and street, ideally rented in the last few months rather than just listed. Comparable listings, rental data tools and local property managers all help; a manager will also tell you how long a house like this sits empty. When you borrow, the appraiser writes the same estimate on a rent schedule (Form 1007 for a single-family home), and investor lenders usually count the lower of the lease and that market rent.

Then take out vacancy. The national rental vacancy rate was 7.6% in the third quarter of 2026, across all rental housing, apartments included. Your street may run higher or lower, so ask a local manager. Common allowances run from 5% to 10%; one month empty a year is 8.3%. Lenders build in a cushion too: on a conventional purchase loan, Fannie Mae counts 75% of the gross rent.

In the sample deal: $3,000 a month is $36,000 a year of gross scheduled rent. Vacancy at 5% is $1,800, which leaves $34,200 of effective gross income.

Short-term revenue

A short-term rental earns its average daily rate (ADR) times the nights booked. Build both from comparable listings with a full year of history: the same bedrooms, sleeping capacity, amenities and distance to whatever brings guests. Check seasonality month by month, because one strong summer can carry a weak winter, or fail to. Confirm the city, the county and the HOA allow short-term rentals before you count a dollar of it. The full method is in how to estimate Airbnb income.

In the sample deal: $300 a night for 240 nights, about 66% occupancy, is $72,000 of gross bookings. There is no separate vacancy line, because the nights not booked are already left out. Lenders discount this income harder than rent: DSCR lenders often count about 80% of a projection, and since September 2026 Fannie Mae's guide counts 50% of short-term rental income on a one-unit investment property, the other half standing in for vacancy and upkeep.

Step 3: What expenses should you include?

List every cost of running the property for a year. The mortgage is not one of them; it comes in Step 4.

Three lines deserve more care than they usually get.

Property taxes can jump after a sale, because many places reassess at the new price. Use the tax on what you will pay, not the seller's bill. Effective rates run from about 0.3% of a home's value in the lowest-tax state to about 1.9% in the highest, and the county's own records settle it.

Insurance has become the line that sinks deals in storm and wildfire country. A short-term rental needs a policy written for paying guests, and it costs more. Get a quote before you make an offer.

Capex is the roof, the air conditioner, the water heater, appliances and floors. They come due every 10 to 25 years, so you set money aside monthly. A percentage of rent is the quick method; the better one is to list each major system, its replacement cost and its remaining life. A $12,000 roof with 15 years left is $800 a year. On your taxes, those replacements are capital improvements you depreciate, not repairs you deduct.

Lines people forget: leasing fees when a tenant turns over, make-ready costs between tenants, lawn care, pest control, pool or hot tub service, snow removal, owner-paid water, sewer and trash, bookkeeping and tax preparation, an eviction now and then, and for a short-term rental, linens and replacing what guests break. What NOI deliberately leaves out (the loan, depreciation, income taxes) is set out in net operating income.

Step 4: Add the financing

Lenders judge the property on its full monthly payment: principal, interest, taxes, insurance and association dues, or PITIA.

• Long-term: $2,097.64 + $400 + $150 + $50 = $2,697.64 a month.
• Short-term: $2,097.64 + $400 + $200 + $50 = $2,747.64 a month (the dearer policy).

A DSCR lender divides the rent it counts by that payment. Long-term: $3,000 ÷ $2,697.64 = 1.11, above the 1.00 most programs require. Short-term: lenders often count about 80% of projected bookings, so $4,800 ÷ $2,747.64 = 1.75. The 25% down payment is a 75% loan-to-value ratio, within what investor lenders commonly allow on a purchase.

Notice what the ratio ignores. It divides gross income by the payment, so it never sees vacancy, management, repairs or the short-term rental's heavy running costs. That is why the next step matters.

Step 5: Calculate NOI, cash flow and the returns

Why does a 5.17% property turn into a negative return once financed? The loan costs 8.39% of its balance a year ($25,171.68 ÷ $300,000), more than the house earns on its price. When the cap rate sits below that figure, borrowing lowers your cash return instead of raising it. Bought for cash, the long-term version would return about 5.02% on $412,000 and the short-term version about 6.41% on $432,000.

Step 6: Stress-test the numbers

A deal that works only if everything goes right is a bet. Change one input at a time and watch the cash flow.

Then work backward to the numbers that would make it work:

• Rent: the long-term version breaks even at about $3,485 a month, 16% above what it rents for.
• Price: with taxes scaled to the price, it breaks even near $340,000.
• Rate: at the same price and rent, it breaks even at an example rate just under 5.6%.
• Management: run the short-term rental yourself and the $12,168 management line becomes your wage. Cash flow rises to $14,668.32, an 11.11% cash-on-cash return, for what is a part-time job.
• More cash down: 40% down cuts the payment to $1,678.11 and turns the long-term cash flow positive, at $526.68 a year, a 0.31% return on $172,000. More cash rarely rescues a thin deal.

If none of those is plausible, the honest answer is to pass, or to buy for a reason the spreadsheet cannot see and to name that reason before you do.

Long-term or short-term: the same house both ways

The short-term version earns twice the gross and spends about 62% of it running the business, against about 40% of the rent the long-term version collects. It needs $20,000 more cash up front, carries regulation risk a lease does not, and depends on reviews, pricing and a cleaner who shows up. The long-term version is steadier and simpler, and at this price and example rate it loses money. Neither answer is general: in another market, at another price, the order flips. Run both, and a mid-term rental (furnished stays of a month or more) as a third column if the area has the demand.

GoDoor's deal calculator runs these steps on a real address: the income, the costs, the loan and the returns, with every assumption on screen to change.

Mistakes that make a bad deal look good

• Using the listing's projected rent, or the seller's property tax bill, instead of your own figures.
• Leaving out management because you plan to self-manage. Your time has a cost, and plans change.
• Skipping vacancy and capex because the house is newly renovated. Tenants still leave and roofs still age.
• Reading a coverage ratio above 1.00 as positive cash flow.
• Counting short-term revenue before confirming it is legal at that address.
• Leaving closing costs and furnishing out of the cash you invested, which flatters every return.

General education, not financial, tax or legal advice. Figures are examples: rates, rules and programs change, and every lender sets its own. Last checked November 4, 2026.