You don't need a spreadsheet to know if a rental property is worth a closer look. Three numbers will tell you in about 60 seconds whether to dig deeper or move on.
Number 1: The 1% Rule
Divide the monthly rent by the purchase price. If the result is 1% or higher, the property likely cash flows.
$150,000 house renting for $1,500/month = 1.0%. Worth analyzing. $300,000 house renting for $1,800/month = 0.6%. Almost certainly won't cash flow.
This isn't perfect — it ignores taxes, insurance, and maintenance — but it eliminates 80% of bad deals in 5 seconds. In today's market, anything above 0.8% deserves a closer look. Above 1% is increasingly rare outside the Midwest and Southeast.
Number 2: Cap Rate
Net operating income divided by purchase price. This tells you your return before financing.
A 7% cap rate means the property earns 7% on its value annually, before mortgage payments. Anything above 6% is strong. Between 4-6% is moderate. Below 4%, you're betting on appreciation, not income.
The national average is around 5.5% right now, but it varies enormously by city. Akron, OH sits at 7.8%. Austin, TX is at 4.1%. That's the difference between cash flow and a money pit.
Number 3: DSCR (Debt Service Coverage Ratio)
Net operating income divided by your mortgage payment. This tells you if the property pays for itself.
Above 1.25 = the property comfortably covers the mortgage with room to spare. Between 1.0-1.25 = it covers the mortgage but tight. Below 1.0 = you're losing money every month.
Most lenders want to see 1.2+ for investment property loans. If your DSCR is below 1.0, no amount of optimism fixes the math.
The quick filter:
1% rule passes? Check the cap rate. Cap rate above 5%? Check the DSCR. DSCR above 1.2? Now run the full analysis.
This takes 60 seconds and saves you hours of analyzing bad deals.
Run these numbers for any of 775 cities instantly:
Next week: The hidden cost that kills most rental property deals (and it's not what you think).
— The Numbers Letter