How to Analyze a Rental Property Investment in 2026 (Step-by-Step Guide)

Buying a rental property without running the numbers is like hiring a contractor without getting a quote. You might get lucky. You probably won't.

The difference between investors who build wealth with rental properties and those who end up with an expensive headache comes down to analysis. Not gut feeling. Not what the listing agent told you. Not what some guy on a podcast said about "any property in this zip code being a good deal."

Actual, line-by-line financial analysis.

In this guide, we'll walk through exactly how to analyze a rental property investment — step by step, with real numbers.

What You Need Before You Start

Before diving into the numbers, gather these inputs:

Purchase price (or your planned offer price)
Expected monthly rent (check Zillow, Rentometer, or local comps)
Down payment amount and loan terms (rate, term, type)
Property taxes (check the county assessor's website)
Insurance estimate ($100–$150/month for a single-family)
HOA fees (if applicable)
Expected vacancy rate (5–10% is standard)
Maintenance reserve (budget 8–12% of gross rent)
Property management fee (8–10% of collected rent)

Step 1: Calculate Gross Rental Income

Example property:

Purchase price: $220,000
Monthly rent: $1,800
Down payment: 25% ($55,000)
Loan: 30-year fixed at 7.0%

Gross annual rental income: $1,800 × 12 = $21,600

Step 2: Account for Vacancy

A 7% vacancy rate is reasonable for most markets.

Vacancy loss: $21,600 × 7% = $1,512 Effective Gross Income: $21,600 – $1,512 = $20,088

Step 3: Calculate Operating Expenses

Expense	Monthly	Annual
Property taxes	$275	$3,300
Insurance	$130	$1,560
Property management (9%)	$162	$1,944
Maintenance reserve (10%)	$180	$2,160
Capex reserve (5%)	$90	$1,080
Landscaping/snow	$50	$600
Miscellaneous	$30	$360
Total	$917	$11,004

Step 4: Calculate Net Operating Income (NOI)

NOI: $20,088 – $11,004 = $9,084

Step 5: Calculate Cap Rate

Cap Rate = NOI ÷ Purchase Price $9,084 ÷ $220,000 = 4.13%

Step 6: Calculate Debt Service

Monthly mortgage payment (P&I): $1,098 Annual debt service: $13,176

Step 7: Calculate Cash Flow

Annual cash flow: $9,084 – $13,176 = –$4,092

This property loses $341 per month. This is why running the numbers matters.

Step 8: Calculate Cash-on-Cash Return

Total cash invested: $61,600 (down payment + closing costs) Cash-on-cash return: –$4,092 ÷ $61,600 = –6.6%

Step 9: Run the 10-Year Projection

With 3% rent growth and 3% appreciation, after 10 years:

Property value: $295,600
Equity: $150,300
Total return: ~$102,000

Step 10: Make the Decision

The deal doesn't work at $220,000 with 25% down at 7%. But what if you offered $195,000? What if you put 30% down? A good spreadsheet lets you test scenarios instantly.

Key Takeaways

Always include all operating expenses. Skip one and your analysis is fiction.
Cap rate is for comparison. Cash-on-cash is for decision-making.
Negative cash flow isn't automatically a dealbreaker — but understand the full 10-year picture.
Run multiple scenarios. Find the terms that make the deal work.
Use a proper analysis spreadsheet. It pays for itself on the first deal you walk away from.