US rental property cash-flow analysis

A 5.4% US rental cap rate fails after debt service.

Our $350,000 worked example produces $18,905 of NOI and $20,076 of annual debt service at a 6.58% mortgage rate. Pre-tax cash flow is −$1,171 before any surprise repair or tax change.

Updated 14 minute read 12 references

The investment case

Debt service breaks the worked rental.

The evidence below connects financing, vacancy, operating cost, and property-level review.

01
Price direction

National price growth slowed.

FHFA rose 1.7% year over year. Eight states and the District of Columbia declined.1

+1.7% 2026 Q1 price change
02
Financing

The 30-year mortgage rate reached 6.58%.

In the worked example, annual debt service exceeds NOI.4

6.58% 30-year fixed rate
03
Rental supply

Vacancy is rising from its recent low.

National rental vacancy reached 7.3%, up from 5.8% in 2022 Q1.3

7.3% 2026 Q1 vacancy
04
Operating cost

Median owner costs reached $2,035 a month.

Tax, insurance, HOA charges, repairs, utilities, and management belong in the offer model.58

$2,035 2024 monthly owner cost
05
Due diligence

Risk is parcel-specific.

Title, flood, lead, permit, lease, and insurance evidence attach to the property.7126

6 property risk checks

Six pressure points

Slower price growth meets a 6.58% mortgage rate.

The measurement period stays attached to every number.

House prices
+1.7%
Year over year · 2026 Q11
States with gains
42
50 states · 2026 Q11
Homeownership
65.3%
National · 2026 Q13
Rental vacancy
7.3%
National · 2026 Q13
30-year fixed rate
6.58%
Weekly average · 23 Jul 20264
Monthly owner cost
$2,035
Median with mortgage · 20245

Analysis

How the market data enters the property decision.

Each chapter keeps the interpretation beside the evidence used to support it.

01

How to read the market

National price data needs a local market filter.

FHFA measures repeat sales of single-family homes. It is a price-change index. It is not a median listing price or a valuation for a specific house.1

The 2026 Q1 spread was wide. Illinois rose 7.3%. Colorado fell 2.4%. The national figure hides that divergence.1

Selected state extremes

Illinois and Colorado moved 9.7 percentage points apart.

Highest state gains plus the largest decline reported for 2026 Q1. This is not a complete ranking.

% year over year · Source 1
02

Rental underwriting

NOI captures the costs missing from gross yield.

Gross yield divides annual rent by purchase price. Net operating income, or NOI, subtracts vacancy and operating costs before financing and tax.

Use actual leases, tax bills, insurance quotes, HOA documents, and repair history. National assumptions are only a stress test.93

Rental supply

National rental vacancy moved above 7%.

First-quarter rental vacancy rates. Submarket lease evidence still determines the underwriting.

% vacant · Source 3
03

Foreign buyers

Foreign ownership creates a separate US tax workflow.

Rent from US property is US-source income for a nonresident alien. The filing and withholding treatment depends on the facts and elections made.109

FIRPTA generally concerns a foreign owner when the property is sold. The buyer can become the withholding agent. This is a closing issue, not a reason to skip tax advice.11

Where the average breaks

Illinois rose 7.3% while Colorado fell 2.4%.

State price direction and local vacancy require separate underwriting.

Price cycle

Annual US house-price change slowed to 1.7%.

Purchase-only FHFA HPI. Seasonally adjusted, nominal, first quarter to first quarter.

% annual change · Source 1
Affordability

Median monthly owner costs rose in 2024.

Owner-occupied homes with a mortgage. The measure includes mortgage, insurance, tax, utilities, and selected fees.

2024 dollars per month · Source 5

Geographic scope

Rules change by state, county, and city.

Use the map for geographic context only. Price, tax, insurance, rent control, title practice, and zoning must be checked locally.

Map © OpenStreetMap contributors ↗

The deal test

Debt service exceeds NOI by $1,171.

The full calculation exposes the assumptions behind the result.

Worked rental scenario

Debt service pushes pre-tax cash flow to −$1,171.

This is a teaching model. It is not a national average or an available property. Change every assumption before using it.43

Purchase price
$350,000
Down payment
25%
Monthly rent
$2,800
Vacancy
7.3%
30-year rate
6.58%
Loan
$262,500
Scheduled annual rent$33,600
Vacancy allowance−$2,453
Tax, insurance, maintenance, management−$12,242
NOI$18,905
Annual debt service−$20,076
Pre-tax cash flow−$1,171
Gross yield9.6%$33,600 ÷ $350,000
Cap rate5.4%$18,905 NOI ÷ $350,000
Cash-on-cash−1.3%−$1,171 ÷ $87,500 down payment

Cash needed at closing

Illustrative closing cash reaches $106,400.

This $350,000 scenario uses planning allowances. Actual closing practice and allocation vary by state, loan, contract, and property.68

$106,400 Illustrative total cash
25% down payment$87,500
Closing allowance · 3%$10,500
Initial reserve · 2%$7,000
Inspection and appraisal allowance$1,400

What the spreadsheet misses

Parcel evidence covers flood, title, insurance, permits, and leases.

Each risk has a review level and a buyer response.

RiskReview levelSignalBuyer response
FinancingHighDebt service exceeds this scenario's NOI.4Stress rates, leverage, refinance assumptions, and DSCR.
InsuranceHighCost and availability can change by peril and location.7Obtain a bindable quote before the contingency expires.
FloodProperty-specificA disclosure alone may not describe the full loss history.7Review FEMA maps, claims, elevation evidence, and policy terms.
Title and lienProperty-specificOwnership, easements, taxes, and liens attach to the parcel.6Review the title commitment and recorded documents.
Lead and conditionProperty-specificOlder housing can carry lead and deferred maintenance risk.12Use the disclosure, inspection, records, and specialist testing.
Local regulationVariableRental, zoning, permit, and HOA rules are local.6Read current ordinances and governing documents.

Before the offer

Review identity, title, condition, insurance, and leases before the offer.

The sequence keeps expensive checks ahead of irreversible money.

  1. 01

    Choose the operating market

    Define tenant demand, rent rules, tax, insurance, and exit liquidity.

  2. 02

    Underwrite the address

    Use actual rent evidence. Build NOI. Stress vacancy and repairs.

  3. 03

    Control the contract

    Keep inspection, financing, title, appraisal, and insurance deadlines visible.

  4. 04

    Inspect the evidence

    Review condition, permits, flood, lead, title, liens, leases, and HOA records.

  5. 05

    Reprice the risk

    Update the offer or exit when verified costs change the return.

  6. 06

    Close and measure

    Store the settlement file. Compare actual NOI with the underwriting case.

Property file

Ten checks before money becomes hard to recover.

  1. 01Recorded owner, legal description, easements, liens, and unpaid taxes
  2. 02Current zoning, permitted use, open permits, and code issues
  3. 03Lease file, deposits, concessions, arrears, and tenant notices
  4. 04Roof, structure, systems, pests, lead, environmental, and repair history
  5. 05FEMA flood map, prior loss evidence, elevation data, and insurance quote
  6. 06Property-tax assessment, reassessment rules, and special assessments
  7. 07HOA budget, reserves, insurance, litigation, restrictions, and minutes
  8. 08Appraisal, loan terms, DSCR, rate reset, prepayment, and reserve requirements
  9. 09Foreign-owner tax, entity, estate, reporting, and FIRPTA advice where relevant
  10. 10Final walk-through, utility transfer, keys, leases, and operating records

Our data boundary

Data coverage stops before legal and physical verification.

Our records can group source listings around a property, preserve asking-price observations, expose timestamps, and retain provenance. They do not prove title, condition, rent collection, insurance availability, a completed sale, or future return.

Review the property data structure →
  • An asking price is not a recorded sale price.
  • A listing status is not a title or occupancy opinion.
  • Missing data stays missing. It is not estimated silently.
  • The public delivery shape is property-profile-v2.
  • Live search availability is determined at runtime, not by this report.

What can change the conclusion

Inputs, periods, and exclusions.

  1. 01

    Market statistics use the release period stated beside each figure. They are not mixed into one synthetic date.

  2. 02

    FHFA price changes are nominal repeat-sales index movements. They are not median prices.

  3. 03

    The rental scenario is hypothetical. Only the mortgage rate and national vacancy input come from cited releases.

  4. 04

    Scenario cost percentages are planning assumptions. They are not presented as national averages.

  5. 05

    Legal and tax sections identify questions for qualified advisers. They are not legal or tax advice.

RE terminology

NOI
Income after vacancy and operating costs, before financing and income tax.
Cap rate
Annual NOI divided by purchase price or current property value.
DSCR
NOI divided by annual debt service.
LTV
Loan balance divided by property value.
Cash-on-cash
Annual pre-tax cash flow divided by cash invested.
FIRPTA
Federal withholding rules that can apply when a foreign person disposes of US real property.

The evidence trail

Official sources and release dates.

Each claim links to the underlying release or guidance page.

  1. 01
    Federal Housing Finance AgencyFHFA House Price Index report · 2026 Q1 ↗26 May 2026
  2. 02
    Federal Housing Finance AgencyUS House Price Index · June 2026 release ↗30 June 2026
  3. 03
  4. 04
    Freddie MacPrimary Mortgage Market Survey archive ↗23 July 2026 observation
  5. 05
    US Census BureauThe Cost of Homeownership Continues to Rise ↗11 September 2025
  6. 06
    US Department of Housing and Urban DevelopmentBuying a Home ↗Retrieved 18 August 2026
  7. 07
    Federal Emergency Management AgencyState Flood Risk Disclosure Best Practices ↗July 2022
  8. 08
    Internal Revenue ServicePublication 530 · Tax Information for Homeowners ↗2025 tax year
  9. 09
    Internal Revenue ServicePublication 527 · Residential Rental Property ↗2025 tax year
  10. 10
    Internal Revenue ServicePublication 519 · US Tax Guide for Aliens ↗2025 tax year
  11. 11
    Internal Revenue ServiceFIRPTA withholding ↗Reviewed July 2026
  12. 12
    US Environmental Protection AgencyLead-based paint information for buyers and renters ↗Retrieved 18 August 2026