What is a good gross rental yield?

A gross rental yield above 6–7% is generally considered favorable for rental property investors in most US markets. However, what's 'good' varies by location — high-cost coastal markets often have lower yields with higher appreciation potential, while Midwest and Sun Belt markets often offer higher yields.

What is the difference between cap rate and cash-on-cash return?

Cap rate measures NOI as a percentage of total property value, ignoring financing. Cash-on-cash return measures actual cash flow as a percentage of your down payment and closing costs. Cash-on-cash is more useful for leveraged investors because it accounts for your mortgage payment.

What is NOI in real estate?

NOI (Net Operating Income) is gross rental income minus all operating expenses, before debt service (mortgage payments). It includes vacancy allowance, property management, taxes, insurance, repairs, and maintenance. NOI is the core metric for property valuation and cap rate calculation.

How do I calculate the cap rate on a rental property?

Divide the property's net operating income (NOI) by its purchase price or current market value, then multiply by 100. For example: $12,000 NOI ÷ $200,000 property value = 6% cap rate. Higher cap rates indicate higher income relative to value but may also signal higher risk.

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🗺️ For Investors · Analysis

How to Compare Rental Property Investments: Yield, Cap Rate, and Cash Flow

Learn how to compare rental properties using gross yield, cap rate, cash-on-cash return, and GRM — the key metrics every rental investor should know.

This article is for educational purposes only and is not financial, investment, or legal advice. Consult a qualified financial advisor before making investment decisions.

Comparing rental properties objectively requires consistent metrics. Here are the six most useful calculations for evaluating rental investment opportunities.

Gross rental yield

Formula: (Annual rent ÷ Purchase price) × 100

Example: $18,000 annual rent ÷ $250,000 purchase price = 7.2% gross yield

Quick screening metric. Doesn't account for vacancy, expenses, or financing. Generally 6%+ is considered worth further analysis in most markets.

Net operating income (NOI)

Formula: Gross rent − Operating expenses (before mortgage)

Example: $18,000 − $7,200 expenses = $10,800 NOI

NOI is the foundation of all other valuation metrics. Expenses typically run 35–50% of gross rent for single-family rentals.

Cap rate

Formula: (NOI ÷ Property value) × 100

Example: $10,800 NOI ÷ $250,000 = 4.3% cap rate

Cap rate is NOI yield on full property value, independent of financing. Compare to market cap rates for the area and asset type. Higher = better return, but also often higher risk.

Cash-on-cash return

Formula: (Annual pre-tax cash flow ÷ Total cash invested) × 100

Example: $4,800 cash flow ÷ $60,000 down payment = 8% CoC

Measures actual cash return on cash invested. Accounts for your financing — the most useful metric for leveraged investors.

Gross rent multiplier (GRM)

Formula: Purchase price ÷ Annual gross rent

Example: $250,000 ÷ $18,000 = 13.9 GRM

Lower GRM = better value relative to rent. Quick comparison tool — useful for screening before deeper analysis. Compare GRMs within the same market/asset type.

1% rule

Formula: Monthly rent ≥ 1% of purchase price

Example: $250,000 × 1% = $2,500/month minimum rent

A rough rule of thumb for cash flow viability. Properties meeting the 1% rule are increasingly rare in many US markets, but it remains a useful quick filter.

A simple evaluation workflow

Screen with gross yield and GRM — eliminate properties that don't pass basic thresholds quickly
Calculate NOI — estimate realistic rent and expenses for properties that pass screening
Run cap rate — compare to market cap rates for comparable assets
Model cash-on-cash — add your financing terms to see actual returns on invested capital
Stress test — run the numbers at 10% and 20% below projected rent; make sure the deal still works

Explore yield and market data on the Investor Map

The RentalNoodle Investor Map shows estimated gross yield, median sale prices, and rental rates across US metros. For research only — not financial advice.

Open Investor Map