How to Analyze a Rental Property in 7 Steps

Most new investors over-analyze the wrong things (paint colors) and under-analyze the right things (vacancy, capex, exit). This is the framework we use inside Havyn to underwrite single-family and small multifamily rentals — seven steps, in order.

Step 1 — Confirm the rent

Don't trust the listing. Pull active comparable rentals within a half-mile, same bed/bath count, similar condition. Take the median, not the average. If the seller's pro forma rent is more than 5% above the median, treat it as aspirational.

Step 2 — Build operating expenses honestly

The line items investors most often miss or underestimate:

• Property taxes — use the post-sale assessed value, not the seller's frozen basis.
• Insurance — get a real quote; landlord policies cost 15–25% more than homeowners.
• Vacancy reserve — 5–8% of gross rent in most markets.
• Maintenance — 5–10% of rent for properties under 30 years old, more for older.
• Capital expenditures — separate from maintenance. 5–10% of rent saved for roofs, HVAC, water heaters.
• Property management — 8–10% of collected rent, even if you self-manage (you should pay yourself).

Step 3 — Calculate Net Operating Income

NOI excludes the mortgage and capex. It's the property's earnings before financing — the number every other metric is built on.

Step 4 — Layer in financing

Get a real rate quote for an investment-property loan, not the owner-occupied rate you see advertised. Investment loans typically run 0.5–0.875% higher and require 20–25% down.

Calculate the monthly principal & interest, then check DSCR (Debt Service Coverage Ratio):

Lenders want 1.20+. Below 1.0 means the property doesn't cover its own mortgage.

Step 5 — Compute the returns that decide the deal

• Cap rate — NOI ÷ purchase price. For comparing properties.
• Cash-on-cash — annual cash flow ÷ cash invested. For deciding if you should buy.
• Going-in yield on cost — for BRRRR or rehab deals: NOI ÷ (purchase + rehab).

For a deeper breakdown of cap rate vs cash-on-cash, see our full comparison.

Step 6 — Stress test it

Re-run the model with each of these, one at a time:

1. Rent down 10%.
2. Vacancy at 12% instead of 6%.
3. Interest rate up 100 basis points (refinance scenario).
4. One $8,000 capex hit in year 1 (HVAC or roof).

Step 7 — Plan the exit

Every deal needs at least two ways out. Long-term hold? Then write down the refi target — what does the property need to appraise at to pull your capital back? Short-term flip? Then your After Repair Value (ARV) needs to be backed by three closed comps in the last 90 days, not actives.

Investors who write the exit before they buy avoid 80% of the deals that go sideways.

What "good" looks like in 2026

With current rates, deals worth doing usually clear:

• Cash-on-cash ≥ 6% in year 1
• DSCR ≥ 1.25
• Cap rate at least 2 points above the 10-year Treasury

Anything below those needs an upside thesis (rent growth, appreciation, force-equity) you can defend in one sentence.