The 5-number workup
1. Realistic rent
Not the seller's pro forma. Not Zillow's optimistic guess. Market rent supported by comparable leased properties — the same number an appraiser's rent schedule will land on. If your rent assumption and the appraiser's differ by 15%, your analysis is fiction.
2. Full PITIA
Principal, interest, taxes, insurance, association dues — the entire monthly payment at realistic financing terms. New investors consistently underestimate taxes and insurance; both have been rising faster than rents in many markets.
3. Vacancy and collection loss
Budget 5–10% of gross rent for vacancy, depending on the market and property class. A property that's "always rented" is a story, not a plan.
4. Maintenance, capex, and management
The silent killers. Older properties need bigger capex reserves (roof, HVAC, plumbing have known lifespans — price them). Even self-managers should underwrite as if paying 8–10% management — because someday you might.
5. True monthly cash flow
Rent minus PITIA minus vacancy minus maintenance/capex/management. What's left is the truth. If it's negative, you're not investing — you're subsidizing a tenant's housing and betting on appreciation.
Check Your Eligibility — DSCR Investor Loan
60 seconds. No obligation, no hard credit pull. NMLS #7861.
Worked example
Illustrative — not a quote. A $320,000 single-family rental. Market rent: $2,600/month. Estimated PITIA at investor financing: $2,050. Vacancy at 7%: $182. Maintenance/capex reserve: $260. Management (underwritten, even if self-managing initially): $208. True cash flow: $2,600 − $2,050 − $182 − $260 − $208 = negative $100/month.
That deal looks fine on a napkin (rent covers PITIA!) and fails the real workup. The honest responses: negotiate the price down, find cheaper insurance, verify the rent is actually $2,600 — or walk. Walking is a valid investment strategy.
The 1% rule and the 50% rule — useful lies
Every investor forum swears by shortcuts. Know what they are — and their limits:
- The 1% rule: monthly rent should be ~1% of the purchase price. A $300,000 property should rent for $3,000. In 2026, this screens out most coastal deals and screens in cash-flow markets — which is exactly its value as a first filter, not a decision.
- The 50% rule: assume operating expenses (not including the mortgage) consume ~50% of gross rent. Crude but directionally honest — and a great reality check against rosy pro formas showing 20% expenses.
Use rules for screening; use the five-number workup for deciding. Nobody ever got rich on a rule of thumb, but plenty of investors have avoided bad deals with one.
Cap rate vs. cash flow — don't confuse them
Cap rate (net operating income ÷ price) measures the property's unleveraged return — useful for comparing properties to each other. Cash flow measures what hits your bank account after the mortgage — useful for your life. A 7% cap rate property with heavy leverage can cash-flow negatively; a 5% cap property bought with cash prints money monthly. Investors who finance need both numbers: cap rate to judge the asset, cash flow to judge the deal.
How this connects to your loan
Here's the elegant part: the DSCR ratio is essentially numbers 1 and 2 — rent divided by PITIA. When your five-number workup is honest, the DSCR conversation is easy, because you've already done the lender's core math yourself. Investors who analyze like this don't get surprised in underwriting; they get approved.
Keep learning: DSCR Investor Loans · DSCR ratio calculator · DSCR requirements.
Frequently asked questions
What is a good cash flow per rental property?
It depends on the market, price point, and your goals — but the principle is universal: underwrite conservatively (real rent, real expenses, vacancy and capex included) and require positive true cash flow.
Should I include property management in my analysis if I self-manage?
Yes — underwrite as if paying for management. It protects your returns if you ever hire it out, and it keeps you honest about the property's true economics.
How does cash flow analysis relate to DSCR?
DSCR is rent divided by PITIA — the core of your cash flow workup. Honest cash flow analysis means no surprises in DSCR underwriting.
Skip the Bank Runaround.
Run your numbers past us before you offer — we'll tell you if the DSCR works, typically same business day.
Get Your DSCR Investor Loan Review
60 seconds. No obligation, no hard credit pull. NMLS #7861.
Guidelines change. Terms, pricing, and requirements vary by investor and are subject to change without notice. Examples in this article are illustrative only — not quotes, approvals, or commitments to lend. This article is educational, not loan advice. Confirm current guidelines with us before making an offer. NMLS #7861 · Equal Housing Opportunity.
