How rental property is calculated
Net operating income equals collected rent after vacancy minus operating expenses, excluding financing. Cap rate divides NOI by price. Subtract loan payments from NOI for cash flow, then divide by cash invested for cash-on-cash return.
Worked example
$2,400 monthly rent with 5% vacancy produces $27,360 annual rent. Subtract $9,000 operating expenses and $14,000 debt service for $4,360 pre-tax annual cash flow.