1. Start with the all-in purchase price
The price on the contract is only the starting point. Add closing costs, lender fees, inspection, appraisal, and any repairs needed before the property can be rented. Our example assumes $9,000 of closing costs and $6,000 of make-ready repairs.
2. Estimate realistic rent
Use recent leased comparables — not asking rents — for similar size, condition, and location. If the home is currently leased, review the lease and payment history, but recognize that in-place rent may be above or below market.
3. Calculate financing
P × r ÷ (1 − (1 + r)^−n), where r = annual rate ÷ 12 and n = months
A $225,000 loan at 7.0% over 360 months produces a payment of about $1,496.93. Get an actual quote; rates and terms for investment property can differ from owner-occupied loans.
4. Estimate property taxes
Estimate at the property level using current rates for every taxing unit — see our property-tax guide. The example uses $6,600 per year.
5. Estimate insurance
Request a landlord (dwelling) policy quote and, where relevant, a separate flood quote. The example uses $2,400 per year; actual premiums vary widely by property and carrier.
6. Account for vacancy
No rental is occupied 100% of the time. The example uses 5% of gross rent, but the right figure depends on the property and area.
7–9. Maintenance, capital expenditures, and management
Reserve for routine repairs (maintenance), for replacing major components like roofs and HVAC systems (capex), and for professional management even if you plan to self-manage — your time has value. The example uses 5%, 5%, and 8% of rent.
10. HOA, if applicable
Confirm dues, special assessments, and any leasing restrictions in the governing documents. The example property has no HOA.
11. Calculate NOI
Effective gross income − Operating expenses (excludes mortgage)
| Line | Amount |
|---|---|
| Gross scheduled rent | $28,800 |
| Less vacancy (5%) | −$1,440 |
| Effective gross income | $27,360 |
| Property tax | −$6,600 |
| Insurance | −$2,400 |
| Management, maintenance, capex (18%) | −$5,184 |
| Net operating income | $13,176 |
12. Calculate cash flow
NOI − Annual debt service
Annual debt service is $1,496.93 × 12 = $17,963. NOI of $13,176 minus debt service leaves about −$4,787 per year, or roughly −$399 per month. On these assumptions, the property does not cover its costs.
13. Calculate cap rate
NOI ÷ Purchase price
$13,176 ÷ $300,000 ≈ 4.4%.
14. Calculate cash-on-cash return
Annual pre-tax cash flow ÷ Total cash invested
Total cash invested is $75,000 down + $9,000 closing + $6,000 repairs = $90,000. −$4,787 ÷ $90,000 ≈ −5.3%.
15. Calculate DSCR
NOI ÷ Annual debt service
$13,176 ÷ $17,963 ≈ 0.73. Many lenders look for DSCR at or above roughly 1.0–1.25 on investment loans, though requirements vary.
16. Stress-test the assumptions
Change one input at a time: lower rent 10%, raise vacancy, add 1% to the interest rate, raise taxes. Note which assumption moves the outcome most. That is where your diligence should go.
17. Consider property-specific risk
- Flood history and flood-zone designation
- Age of roof, HVAC, foundation, plumbing, and electrical
- HOA leasing restrictions
- Tenant-occupied vs. vacant at closing
- Insurance availability
18. Compare against alternatives
A deal is only good or bad relative to what else you could do with the same cash. Print or save each report and compare them side by side using identical assumption standards.
Analyze Your Own Houston Rental
Every step above is built into the Deal Generator, with stress testing and the transparent 713 Metrics Score.
Open the 713 Deal GeneratorSources & Further Reading
- Harris Central Appraisal District — Property search, appraisal notices, and protest information. hcad.org
- Consumer Financial Protection Bureau — Buying a house: loan estimates and closing disclosures. www.consumerfinance.gov/owning-a-home/
- Federal Reserve Bank of St. Louis (FRED) — 30-Year Fixed Rate Mortgage Average in the United States. fred.stlouisfed.org/series/MORTGAGE30US
- FEMA — Flood Map Service Center. msc.fema.gov/portal/home
- Texas Department of Insurance — Homeowners and dwelling insurance consumer help. www.tdi.texas.gov
Sources accessed for review on October 5, 2026. Laws, rates, and programs change — confirm current details at the source.
713 Metrics provides educational and informational tools and content. Nothing on the platform constitutes financial, investment, tax, legal, lending, appraisal, brokerage, insurance, or real-estate advice. Users should independently verify information and consult appropriate licensed professionals.