MONEY GLOBE XHousing Pro · Lesson 2
Investment property: cap rate and cash flow
Does the rent really pay?
Professional - Gold & Platinum
In this lesson
Calculate net operating income, cap rate, and cash flow, and spot negative leverage when the cap rate is below the mortgage rate.
Key takeaways
- Net operating income = rent − operating costs (taxes, insurance, maintenance, vacancy), before mortgage payments.
- Cap rate = NOI ÷ price: the unleveraged yield.
- If the cap rate is below the mortgage rate, leverage hurts cash flow (negative leverage).
- Cash-on-cash return = annual cash flow ÷ cash invested.
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Next lesson: Housing and credit cycles
Educational information only - not financial advice.