Property Analysis Worksheet

To analyze a rental deal, work in this order: verify market rent with comparables, subtract realistic vacancy and a full expense build-up to get net operating income (NOI), then test the price with the cap rate and the financing with the debt service coverage ratio (DSCR), cash-on-cash return and break-even ratio. Finish by stress-testing the numbers and checking what the exit could look like. The worksheet below walks through every line, and the fourplex example shows all the arithmetic.

All figures in the example are hypothetical and chosen to illustrate the method. Replace every one with numbers you have verified for the property you are looking at. This is educational material, not investment, tax or legal advice.

The worksheet

Copy this table into a spreadsheet and add a column for your own numbers. Sections A to D follow the order of the analysis. The example column is the hypothetical fourplex worked through later on this page.

Step 1: Establish market rent with comparables

Everything downstream depends on the rent figure, so build it from evidence, not from the listing. Pull at least three to five comparable rentals that match on unit size, bedroom and bathroom count, condition, parking, laundry and location. Recently leased units are better evidence than active listings, because asking rents can sit unleased for weeks.

• Adjust for differences. If a comp has in-unit laundry and your units don’t, adjust its rent down. If yours were just renovated and the comp is dated, adjust up.
• Compare current rents to market. Get the seller’s rent roll and leases. If current rents are below market, note when each lease ends and what your state and city allow for increases. Below-market rents are an opportunity only if you can realistically capture them.
• Watch for concessions. A month free on a 12-month lease reduces effective rent by about 8%.
• Use conservative numbers. Analyze at the rent you’re confident of, not the best case.

Our rent estimator and the guide to setting the right rent explain the comp process in more detail. In the example, comps support $1,450 per unit for the four two-bedroom units.

Step 2: Build up income and vacancy

Gross potential rent is what you would collect with every unit leased all year at market rent: 4 × $1,450 × 12 = $69,600. Add verifiable other income such as coin laundry, parking or storage: $100 a month × 12 = $1,200. Gross potential income is $69,600 + $1,200 = $70,800.

Then subtract vacancy and credit loss, the rent you won’t collect because of turnover gaps and unpaid rent. Use local data where you can, and think about turnover directly: if each unit turns over every two years and sits empty for a month each time, that alone is about 4% vacancy, before any non-payment. The example uses 6% of GPR: $69,600 × 0.06 = $4,176. Effective gross income is $70,800 − $4,176 = $66,624.

Step 3: A realistic operating expense build-up

Underestimated expenses are the most common reason a deal that looked good on paper disappoints. Build each line separately:

• Property taxes ($7,200). In many places a sale triggers reassessment, so the seller’s tax bill may understate yours. Estimate the new bill from the local tax rate and your price, or call the assessor’s office. The example assumes 1.5% of the price: $480,000 × 0.015 = $7,200.
• Insurance ($4,200). Get a written quote for a landlord (dwelling) policy with the liability limits you want. Rates vary widely by location and building age. See our rental property insurance guide.
• Repairs and maintenance ($4,872). Day-to-day fixes, turnover painting and cleaning, and service calls. The example uses 7% of GPR: $69,600 × 0.07 = $4,872.
• Capital expenditure reserve ($6,000). Big items wear out on a schedule whether or not you budget for them. List roof, HVAC or boilers, water heaters, windows, flooring, appliances and paving, with replacement cost and remaining life. If four water heaters cost $1,600 each and have about four years left, that line alone is 4 × $1,600 ÷ 4 = $1,600 a year. The example rounds the full component list to $1,500 per unit per year: 4 × $1,500 = $6,000.
• Property management ($5,330). Include it even if you plan to self-manage. Your time has value, and a buyer or lender will include it. The example uses 8% of collected income: $66,624 × 0.08 = $5,329.92, rounded to $5,330.
• Owner-paid utilities ($4,800). In many small multifamily buildings the owner pays water, sewer and trash. Ask for 12 months of actual bills.
• Other ($1,800). Accounting and tax preparation, legal, rental licenses, landscaping, snow removal, advertising, bank fees.

Total: $7,200 + $4,200 + $4,872 + $6,000 + $5,330 + $4,800 + $1,800 = $34,202. As a check, $34,202 ÷ $66,624 = 51.3% of effective gross income. Compare that ratio with similar buildings using the expense ratio calculator; if your ratio is far below what similar properties run, look for a missing line. Mortgage payments, depreciation and income taxes are not operating expenses and don’t belong here.

Step 4: NOI and cap rate

Net operating income = EGI − operating expenses = $66,624 − $34,202 = $32,422.

Cap rate = NOI ÷ price = $32,422 ÷ $480,000 = 0.06755, or 6.75%. The cap rate is the unleveraged yield on the price you pay, and it lets you compare properties regardless of how they are financed. It also works in reverse as a pricing check: if similar fourplexes in the area have recently sold at about 7.25% cap rates based on realistic NOI, this property is worth roughly $32,422 ÷ 0.0725 = $447,200, which suggests the $480,000 asking price is rich unless something justifies a premium.

Be careful with cap rates in listings. They are often calculated on the seller’s numbers, which may leave out management, reserves or a reassessed tax bill. Always recalculate with your own NOI.

Step 5: Debt service and DSCR

The example assumes 25% down and a 30-year fixed loan at 6.75%. Loan amount: $480,000 − $120,000 = $360,000. The monthly principal and interest payment uses the standard formula P × r ÷ (1 − (1 + r)⁻ⁿ), where P is the loan, r is the monthly rate (0.0675 ÷ 12 = 0.005625) and n is 360 payments. That gives $2,334.95 a month, or $2,334.95 × 12 = $28,019.40 a year of debt service.

Debt service coverage ratio = NOI ÷ annual debt service = $32,422 ÷ $28,019.40 = 1.16. The property’s income covers its loan payments 1.16 times. Many investment lenders want 1.20 to 1.25 or more. At a 1.25 requirement, the maximum annual debt service is $32,422 ÷ 1.25 = $25,937.60. This loan costs $28,019.40 ÷ $360,000 = 7.78% of the loan amount each year, so the largest loan the property supports is about $25,937.60 ÷ 0.0778 = $333,000. To buy at $480,000 the buyer would need to put down about $147,000 instead of $120,000, or negotiate the price down.

Step 6: Cash flow, cash-on-cash and break-even

Annual cash flow before tax = NOI − debt service = $32,422 − $28,019.40 = $4,402.60, or about $367 a month for the whole building.

Cash invested = $120,000 down + $14,400 closing costs (3%) + $8,000 immediate repairs = $142,400.

Cash-on-cash return = cash flow ÷ cash invested = $4,402.60 ÷ $142,400 = 3.09%. This is the first-year cash yield on your own money. It ignores loan paydown, appreciation and tax effects, which you can add with the ROI calculator.

Break-even ratio = (operating expenses + debt service) ÷ gross potential income = ($34,202 + $28,019.40) ÷ $70,800 = $62,221.40 ÷ $70,800 = 87.9%. The building has to collect almost 88% of every possible dollar to break even, so there is only about a 12% cushion for vacancy, bad debt and surprises. The break-even calculator runs this test quickly.

Step 7: Sensitivity check

A single set of numbers hides risk. Change one assumption at a time, then several together, and see what happens to DSCR and cash flow. Management (8% of EGI) and maintenance (7% of GPR) move with income in this model, which is why some expense totals change in the rent and vacancy rows.

Two examples of the arithmetic. With 10% vacancy, vacancy loss is $69,600 × 0.10 = $6,960, EGI is $70,800 − $6,960 = $63,840, management falls to $63,840 × 0.08 = $5,107, total expenses are $33,979, and NOI is $63,840 − $33,979 = $29,861. At 7.50% interest the payment on $360,000 rises to $2,517.17 a month ($30,206.04 a year), and cash flow drops to $32,422 − $30,206.04 = $2,215.96.

The lesson from this table: the base case works, but thinly. Any single bad assumption cuts cash flow by half or more, a heavier capex year nearly wipes it out, and a combination of modestly worse rent, vacancy and rate makes the property lose about $2,900 a year with DSCR below 1.0. A buyer seeing this would either negotiate the price down, put more money down, or walk away.

Step 8: Exit assumptions

Buying is only half the decision. Before you commit, sketch a plausible sale, because the exit often drives a large share of total return and the cap rate at sale matters as much as the one at purchase. Example, using purely hypothetical assumptions:

• Hold for 10 years, with NOI growing 2% a year: $32,422 × 1.02¹⁰ ≈ $39,522 in year 10.
• Loan balance after 120 payments: about $307,084.
• Selling costs: 6% of the sale price.

If buyers then pay a 6.75% cap rate: sale price $39,522 ÷ 0.0675 ≈ $585,511; selling costs $35,131; pre-tax equity $585,511 − $35,131 − $307,084 = $243,296.

If the exit cap rate is 7.25% instead: sale price $39,522 ÷ 0.0725 ≈ $545,131; selling costs $32,708; pre-tax equity $205,339. A half-point change in the exit cap rate moves your equity by about $38,000.

These figures are before tax. When you sell a rental, you generally owe tax on the gain over your adjusted basis, and the portion of the gain from depreciation you took (unrecaptured section 1250 gain) can be taxed at up to 25%, according to IRS Topic 409. State income tax and, for some owners, the net investment income tax can apply too. Use the keep-or-sell rental property calculator to estimate after-tax proceeds and compare selling with holding or a 1031 exchange, and the property investment analyzer to model multi-year returns including loan paydown and appreciation. Keep good basis records from day one; our expense tracking template shows how.

Common mistakes in deal analysis

• Using the seller’s pro forma. Projected rents and trimmed expenses make almost any deal look good. Rebuild every line yourself.
• Leaving out management and capex. These two lines alone were $11,330 in the example, more than twice the cash flow.
• Using the old tax bill when the sale will trigger reassessment.
• Zero vacancy. Even well-run buildings turn over.
• Confusing cap rate with return. Cap rate ignores financing; cash-on-cash ignores appreciation and loan paydown. Look at several metrics together.
• Counting principal paydown as cash flow. It builds equity but doesn’t pay bills.
• No stress test. If a 10% rent dip makes the deal negative, you are relying on luck.
• Skipping due diligence. Numbers are only as good as the inspection, leases and records behind them. Use the due diligence checklist before you close.

How to use the results

No single metric decides a deal. Set your own minimums before you look at properties (for example, a DSCR you are comfortable with at a stress-tested interest rate, a minimum cash-on-cash return, and a maximum break-even ratio) and stick to them. If a property fails, work backwards: what price, down payment or rent would make it pass? That number becomes your offer, or your reason to keep looking. For two- to four-unit buildings the multi-unit property calculator runs these steps quickly, and the guide to calculating rental ROI explains the return metrics in more depth.

Disclaimer: hypothetical example for education only. Not investment, tax or legal advice. Verify all figures and consult a licensed CPA, attorney or financial professional before buying or selling property.