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A good cap rate depends heavily on the market. In high-cost cities like NYC or San Francisco, cap rates of 3-5% are common. In secondary and tertiary markets, 6-10% is more typical. Most investors target a minimum of 5-6% cap rate, but cash-on-cash return and local market appreciation potential matter just as much. Don't use cap rate in isolation.

The 1% rule states that a rental property's monthly rent should be at least 1% of the purchase price to be considered a good deal. A $200,000 property should rent for at least $2,000/month. It's a quick screening filter, not a substitute for full analysis. Many great deals in appreciating markets don't pass the 1% rule but still produce strong total returns.

Cash-on-cash return (CoC) measures your annual pre-tax cash flow divided by the total cash you invested — down payment, closing costs, and repairs. If you invested $60,000 and earn $6,000/year in cash flow, your CoC is 10%. Most investors target 8-12% minimum. CoC is arguably more important than cap rate because it accounts for financing.

Always include: mortgage P&I, property taxes, insurance, property management (8-12% of rent), maintenance/repairs (estimate $1,500-3,000/yr for a single family), vacancy (5-8% of gross rent), and CapEx reserves for big-ticket items like roof, HVAC, appliances (another 5-10% of rent). New investors routinely underestimate vacancy, management, and CapEx — which turns profitable-looking deals into money losers.

Net Operating Income (NOI) is gross rental income minus vacancy minus all operating expenses — but NOT including mortgage payments. NOI = Gross Rent × (1 - Vacancy Rate) - Operating Expenses. Cap Rate = NOI ÷ Property Value. NOI is the primary valuation metric for commercial real estate and is used by appraisers, lenders, and investors to compare properties regardless of financing.

Debt Service Coverage Ratio (DSCR) = NOI ÷ Annual Mortgage Payment. A DSCR of 1.0 means the property just covers its mortgage. Most lenders require a minimum DSCR of 1.20-1.25, meaning the property generates 20-25% more income than its debt payments. DSCR loans for investors use only the property's rental income to qualify — not the borrower's personal income — making them popular for investors with multiple properties.

Property taxes vary dramatically by state and county. As a rough estimate, 1-2% of assessed value annually is typical in most US markets, divided by 12 for monthly. Texas, Illinois, and New Jersey have some of the highest rates (2-3%). Hawaii, Alabama, and Colorado have lower rates (0.5-1%). Always verify the exact tax bill with the county assessor before closing — assessed value and market value often differ significantly.