Hey Lykkers! Ever found yourself scrolling through property listings, wondering how to quickly separate the money-making gems from the financial black holes? You're not alone.

The world of rental property investing can feel overwhelming, but what if I told you that seasoned investors have a handful of simple math tricks they use to screen properties in minutes?

No advanced degree required—just some basic arithmetic that could save you from a terrible investment. Let's dive into 5 essential formulas that will transform how you look at potential rental properties.

1. The Famous 1% Rule: Your Initial Gut Check

This is the golden rule of quick screening. The 1% Rule states that a rental property's monthly rent should be at least 1% of the total purchase price.

Example: If you're looking at a $300,000 property, you'd want to see it generating at least $3,000 per month in rent.

Why it matters: It's your first filter. If a property doesn't meet this benchmark, it likely won't generate positive cash flow after expenses. Brandon Turner emphasises that for many investors the 1% Rule acts more as a rapid screening tool than a definitive decision‑maker.

2. The 50% Rule: Planning for Reality

Here's where many new investors get tripped up. The 50% Rule estimates that about 50% of your rental income will go toward operating expenses (not including your mortgage payment).

Example: That same $3,000 monthly rent means approximately $1,500 will cover taxes, insurance, repairs, vacancies, and maintenance.

The reality check: This rule prevents you from overestimating profits. According to NAA's Income/Expense IQ benchmarks, operating expenses in multifamily properties have been increased by 8.0 percent year over year in 2023,

with insurance (+29 percent), marketing (+12.7 percent), administrative (+10.8 percent), and repairs/maintenance (+9.8 percent) costs taking the lead.

3. Cash-on-Cash Return: Measuring Your Actual Yield

This tells you what return you're actually making on the cash you invested. The formula is:

Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100

Example: If your annual cash flow is $10,000 and you invested $50,000 (down payment + repairs), your return is 20%.

Why it's powerful: It lets you compare real estate against other investments like stocks or bonds.

4. The Cap Rate: Comparing Properties Apples-to-Apples

The Capitalization Rate (Cap Rate) measures a property's return without considering financing. The formula is:

Cap Rate = (Net Operating Income / Property Price) × 100

Where Net Operating Income = Annual Rental Income - Operating Expenses (excluding mortgage).

Example: A $400,000 property generating $30,000 NOI has a 7.5% cap rate.

The pro's perspective: This is how commercial investors compare properties across different markets. According to CBRE's U.S. Cap Rate Survey for H2 2024, cap-rate estimates vary significantly by property type and risk profile—with stabilized Class A office assets in gateway markets now exceeding 8%, and distressed Class C office properties trading in the low-teens.

5. The Debt Service Coverage Ratio (DSCR): Will It Pay Its Bills?

Lenders love this one—and you should too. DSCR measures whether the property generates enough income to cover its mortgage payments.

DSCR = Net Operating Income / Annual Debt Payments

Example: If your NOI is $24,000 and your annual mortgage is $20,000, your DSCR is 1.2.

The banker's benchmark: Most lenders require a DSCR of 1.25 or higher. Underwriting guidelines typically treat a DSCR below 1.0 as a warning sign, since the property isn't generating enough income to meet debt service.

Your New Real Estate Superpower

Remember, Lykkers, these aren't rules to be followed blindly but tools to help you think like an experienced investor. The best investors use multiple formulas to get a complete picture before diving deeper into due diligence.

Now you're equipped with the same quick math that professionals use daily. Which of these formulas are you most excited to try out on your next property find? Share your thoughts below.