Rental Math: The Simple Breakdown That Turns Beginners Into Investors

Nhald Quiambao
2 days ago
3 min read

“If you can do this math, you can buy your first rental.”

Most people think rental investing is complicated — spreadsheets, formulas, risks, rates. But here’s the truth: most successful investors rely on a few simple numbers to decide whether a property is worth it. Not perfect credit. Not a huge down payment. Not fancy data tools. Just basic math that helps you understand cash flow, expenses, and whether a deal will pay you every month.

If you've ever felt overwhelmed by the idea of buying a rental, this blog is your turning point. By the end, you’ll know the exact numbers I teach my coaching clients so you can analyze deals confidently.

1. Start With the 1% Rule (Your First Quick Filter)

The 1% Rule is one of the fastest ways to tell if a property is worth a closer look.

The rule: Your monthly rent should equal at least 1% of the purchase price.

Example: If a home costs $180,000, you want the rent to be around $1,800/month.

Is this rule perfect? No. Does it eliminate bad deals fast? Absolutely.

If a property rents for $1,200 but costs $250,000, you don’t waste your time running deeper numbers.

2. Estimate Your Operating Expenses (The 50% Rule)

Once a property passes the 1% rule, your next step is understanding expenses — not just the mortgage. Operating costs include:

• Taxes• Insurance• Repairs• Vacancies• Property management• Maintenance• Capital expenditures

The simplest beginner formula is the 50% Rule:

Half of your rental income will go toward expenses (not including the mortgage).

Example: Rent = $1,800/month50% expenses = $900Left over = $900 (before mortgage)

This keeps you safe by preventing you from underestimating costs — the #1 beginner mistake.

3. Calculate Your Cash Flow (Your Monthly Profit)

Now subtract your mortgage payment from what’s left.

Important Note: Your mortgage payment is typically principal + interest. However, many lenders set up an escrow account so taxes and insurance are also included in the monthly payment. Always confirm whether:

a) your mortgage payment is P&I only, orb) it includes PITI (principal, interest, taxes, insurance).

Using our example with P&I only:

• Rent: $1,800• Expenses (50%): $900• Remaining: $900• Mortgage (P&I): $750

Cash flow = $150/month

If your mortgage includes taxes and insurance, that number must be deducted separately instead of being accounted for in the 50% Rule.

4. Understand the Cash-on-Cash Return (Your Investor Scorecard)

Cash-on-cash return (CoC) tells you how hard your money is working.

Formula: Annual cash flow ÷ total cash invested = CoC return

If you invest $28,000 into a deal and earn $1,800 in annual cash flow:

$1,800 ÷ $28,000 = 6.4% return

Is 6% good? Most investors use 6–12% as a healthy range depending on the market.

This doesn’t even include appreciation, tax benefits, or principal paydown — the silent wealth builders.

5. The Break-Even Point (Your Safety Net)

Ask yourself: “If the property sits vacant for one month, can I still cover the payments?”

This is your break-even point — and it protects you from surprises.

Aim to keep at least:

• One month of mortgage reserves• A basic repair fund• A plan for yearly expenses

These simple habits separate confident investors from stressed ones.

The Bottom Line

If you understand these five numbers — 1% Rule, 50% Rule, cash flow, cash-on-cash return, and break-even point — you can analyze a rental property better than most beginners.

You don’t need to be rich. You don’t need to guess. You just need the math.

And yes — you can absolutely do this math.