A fast first pass can organize a handful of inputs, compute standard ratios, and expose the assumptions most likely to change the result. It cannot complete the property-specific diligence or choose the investment. This post separates the quick screen from that deeper work.
The goal isn't to make a final buy decision in 60 seconds. It's to triage: organize the projected metrics, compare them with criteria you choose, and identify the facts that need deeper verification before you decide what to do next.
The five numbers you need
A preliminary screen starts with five input groups. Some may appear in a listing; others require a lease, assessor record, insurance or lender quote, inspection, or an explicit starting assumption.
- Purchase price. The asking price. You'll later run scenarios against a negotiated price too, but start with what the seller wants.
- Monthly gross rent. If the property is occupied, record the current lease amount separately. If vacant, enter an estimated market rent supported by recent comparable properties. HUD Fair Market Rent can provide labeled area context, but it is not a floor or a property-specific rent comp.
- Operating expenses (annualized). Property tax, insurance, maintenance, management, vacancy reserve, HOA, owner- paid utilities, replacement reserve. A broad expense-ratio rule can be a labeled triage check, but it must not replace the individual categories or turn missing costs into zero.
- Financing terms. Down payment percentage, interest rate, amortization term, and loan fees. Use a clearly labeled benchmark for an early screen, then replace it with the written quote and terms for the loan you may use. For a cash purchase, model no debt service.
- Closing costs and initial cash items. Enter title, lender and transaction costs, cash-funded immediate repairs, and the initial reserve separately when known. A percentage default is only a starting estimate and must remain labeled as such.
Have those five? You're ready to compute the four metrics that actually matter.
Metric 1: The 1% rule (5 seconds)
The 1% rule is the fastest possible screen. Divide monthly gross rent by the purchase price. It compares price with gross rent only; it says nothing about expenses, financing, condition, or actual cash flow.
Example: $2,500/mo rent on a $250,000 property = 1.0%, which meets the benchmark. $1,800/mo rent on a $300,000 property = 0.6%, which does not meet it.
Meeting or missing the 1% reference does not establish whether the property works. Continue with the complete expense and financing model, then compare the result with the criteria you selected.
Metric 2: Cap rate (15 seconds)
Cap rate (capitalization rate) measures the unleveraged annual return — what the property earns as a percentage of its price, ignoring financing. It's the single most-used commercial real estate metric.
Cap-rate ranges vary by property type, condition, market, lease quality, expense conventions, and data date. Compare like with like and verify that NOI excludes financing while including the applicable operating costs.
Comparing cap rate with current alternatives can add context, but it is not an apples-to-apples suitability rule: liquidity, leverage, workload, transaction costs, taxes, condition risk, and uncertain future price changes differ materially.
Metric 3: Cash-on-cash return (15 seconds)
Cap rate ignores financing, which is great for comparing properties but useless for your personal investment decision. Cash-on-cash return measures the return on the cash you actually invest, after the mortgage payment.
Cash-on-cash is specific to the stated financing and initial-cash assumptions. There is no universal acceptable band. A negative result means the modeled pre-tax cash flow after reserve is below zero; it does not predict future appreciation or choose the next step.
Metric 4: DSCR (10 seconds)
Debt Service Coverage Ratio — the metric every lender pulls before approving a mortgage. DSCR is annual NOI divided by annual mortgage payments. It tells you (and your lender) whether the property can service its debt with operating income alone.
DSCR definitions, minimums, rent evidence, expense treatment, leverage, and pricing tiers vary by lender and program. Use this ratio to test coverage and downside, then obtain the lender's written formula and quote; a modeled band does not establish approval or pricing.
The two sanity checks
Numbers can pencil and the deal can still be a trap. Two final checks before you call it.
Sanity check 1: Stress-test rent and vacancy
What happens to your DSCR and cash flow if rent comes in 10% below your estimate, or vacancy spikes from 5% to 10%? If a small miss on either input flips the deal from positive cash flow to negative, the result is highly sensitive to those assumptions. Label that risk and decide how much evidence or margin your criteria require.
Sanity check 2: Compare alternatives on the same basis
A current lower-risk yield can be one reference, but cap rate is not a total-return forecast and the risks are different. Record which cash flows, fees, taxes, liquidity limits, leverage, work, and future value assumptions are included before comparing alternatives.
Putting it together
The 60-second workflow:
- Record whether the property meets the 1% benchmark.
- Compute cap rate and compare it with relevant market evidence.
- Compute cash-on-cash using the financing you expect.
- Compute DSCR, then compare it with the written requirements of the lender and program you may use.
- Stress-test rent and vacancy; label any assumption that changes the cash-flow sign or coverage band.
- Compare alternatives on a clearly stated, like-for-like basis.
These checks do not choose the next step for you. They make the tradeoffs visible so you can decide whether to continue with rent comps, actual tax records, inspection, document review, and an illustrative long-term model.
The shortcut: TrueCap computes the first-pass metrics consistently and can start from labeled HUD, published-rate, and state effective-tax benchmarks when available. Every estimate stays editable and should be replaced with property-specific evidence.
FAQ
Is 60 seconds enough to underwrite a rental property?
Sixty seconds is enough for a preliminary screen, not a complete underwrite or a decision to buy. It can organize the projected metrics, show how they compare with criteria you choose, and identify assumptions that need verification. Before making an offer, validate rent comps, inspect the property, review actual operating statements, and stress-test the assumptions yourself.
What's the difference between underwriting and analyzing a rental property?
In practice they're used interchangeably. 'Analysis' is more common among individual investors; 'underwriting' is the term lenders and institutional buyers use. Both describe the same workflow: gather the financial facts, compute the standard return metrics, decide if the projected return justifies the price and risk.
What's the most important metric — cap rate, cash-on-cash, or DSCR?
Depends what you care about. Cap rate measures the property as if you owned it free-and-clear — useful for comparing properties regardless of how they're financed. Cash-on-cash measures the return on the cash YOU specifically put in — useful for comparing leveraged deals. DSCR measures projected debt-service coverage, but each lender applies its own definition and minimum. A complete review should consider all three alongside cash flow and the underlying evidence.
What's a 'good' cap rate?
There is no universal good cap rate. Compare the property with relevant market evidence, its condition and workload, current financing, alternative uses of capital, and the return criteria you choose. A market median is context, not a suitability threshold.
Why use a calculator instead of a spreadsheet?
A well-built spreadsheet can be flexible, but the owner must maintain its formulas, units, versioning, and input sources. TrueCap provides a reviewed calculation path, labeled HUD and rate benchmarks, editable assumptions, and repeatable stress scenarios; those starting estimates still require property-specific verification.
Should I underwrite a property before I tour it or after?
A preliminary screen before a tour can help you identify the questions and assumptions that deserve attention on site. It does not replace the tour, inspection, document review, or your own decision about which properties merit deeper work.