How TrueCap's verdict engine decides Strong Buy vs Avoid

Why we built a verdict engine at all

A rental analysis spits out numbers — cap rate, cash flow, DSCR, cash-on-cash, IRR — and a new investor stares at them wondering if 6.5% is good. An experienced investor knows the rules of thumb (DSCR ≥ 1.25, cap rate ≥ 7% in most markets, etc.) but still wants a second eye that hasn't fallen in love with the deal.

The verdict engine answers "is this a deal?" with one of five tiers and a one-paragraph rationale. It runs free, on every analysis, on every property. Pro users get the more sophisticated Deal Score on top, but the verdict is the baseline.

The whole engine is open — the source code is at lib/verdict.ts in the codebase that powers this site. This post explains the thresholds with the same numbers the production code uses.

The five tiers, in one sentence each

• Strong — clears every metric with margin. Move on it if the assumptions check out.
• Solid — clears every threshold but without a huge buffer. Worth a deeper underwrite.
• Mixed — one or two metrics are below target. Stress-test before offering.
• Marginal — cash flow is negative or DSCR is below 1.0. The deal works only if your assumptions are too conservative.
• Negative— cash flow is meaningfully negative or DSCR is well below 1.0. The numbers don't support a buy-and-hold thesis.

The exact thresholds (financed purchase)

Most rental purchases use financing, so this is the primary path. The verdict checks four metrics and picks the tier where the deal first matches.

Strong

All three must hold:

• Monthly net cash flow ≥ $400
• DSCR ≥ 1.25
• Cash-on-cash ≥ 10%

The $400/month cash flow floor is the equivalent of about $5,000/year in real money — enough to absorb a vacancy or minor capex without going underwater. 1.25 DSCR is the standard non-QM and DSCR lender threshold; clearing it means the deal would qualify for normal investor financing. 10% CoC is well above typical alternatives (savings, indexed equity ETFs, money-market funds), which is the bar a real-estate deal should beat to justify the illiquidity.

Solid

All three must hold:

• Monthly net cash flow ≥ $100
• DSCR ≥ 1.15
• Cash-on-cash ≥ 6%

Solid is "works on paper, no cushion." A $100/month cash flow buffer disappears the moment vacancy ticks up or a major appliance breaks. 1.15 DSCR is above breakeven but below the 1.25 most lenders want, which is a common spot for deals where you bring extra down to qualify. 6% CoC is roughly in line with the long-run S&P 500 dividend yield plus a modest premium — fair compensation for the operational work of being a landlord.

Mixed

Anything that doesn't hit Strong or Solid but still has positive cash flow and DSCR ≥ 1.0 lands here. Cash flow is positive but maybe only by a few dollars. DSCR clears breakeven but tightly. CoC may be modest. The deal probably works under one set of assumptions but breaks under realistic ones.

Marginal

• Monthly cash flow is negative but not worse than -$200, or
• DSCR drops between 0.9 and 1.0

Marginal is "the math doesn't work today, but the deal could become real if rents come in above your projection or you lock in below-market financing." It's a deal worth a second look, but only if you have a specific reason to think your assumptions are conservative.

Negative

• Monthly cash flow worse than -$200, or
• DSCR below 0.9

Negative is "the numbers don't support a buy-and-hold thesis as entered." Either the purchase price needs to come down, the rent needs to come up, or you're betting on appreciation rather than operational returns. There's nothing wrong with that as a strategy — just don't lie to yourself about it being a cash-flowing rental.

The cash-purchase path

When the analysis says monthlyPayment <= 0 — i.e., there's no financing — DSCR doesn't mean anything. There's no debt service to cover. The verdict engine detects this and switches to a simpler classifier:

• Strong: cash flow ≥ $400/mo, cap rate ≥ 7%, CoC ≥ 8%.
• Solid: cash flow ≥ $100/mo, cap rate ≥ 5%, CoC ≥ 5%.
• Mixed: positive cash flow but below Solid thresholds.
• Marginal / Negative: same negative cash flow cutoffs as financed (-$200 boundary).

CoC thresholds are slightly lower than the financed path because cash purchases are giving up leverage — the "same" 8% CoC on cash represents a higher risk-adjusted return than 8% CoC on a financed deal, because there's no debt-service risk.

How the engine talks about each metric

The verdict isn't just a tier — it's a paragraph. Each metric gets one sentence with a band-appropriate read.

Cap rate sentences

• ≥ 7%— "healthy for most markets, indicating the property earns its own way independent of how it's financed."
• 5-7%— "typical range for stable / appreciation-focused markets."
• 3-5%— "on the low end — common in coastal / Tier-1 markets where appreciation is the dominant return."
• < 3%— "well below market norms; verify the rent assumption and operating expense estimates."

DSCR sentences

• Cash purchase— "DSCR isn't applicable for an all-cash purchase."
• ≥ 1.25— "clears the typical ≥ 1.25 lender threshold; the property comfortably covers debt service."
• 1.0 - 1.25— "in tight territory (above breakeven but below the ≥ 1.25 most lenders require for investment loans)."
• < 1.0— "below 1.0 — operating income doesn't cover debt service, so the owner subsidizes the property each month."

Cash-on-cash sentences

• ≥ 12% — "strong."
• 8 - 12% — "healthy target for buy-and-hold."
• 4 - 8% — "modest, likely an appreciation play."
• 0 - 4% — "below typical alternatives."
• < 0% — "negative — investor capital loses value year over year on cash terms alone."

What the verdict doesn't do

These are deliberate scope decisions:

• No appreciation modeling.The verdict is operations-only — it asks "does this property earn its keep today?" not "will it be worth more in 5 years?" That's by design. The Pro tier's 10-year projection and exit-scenarios modeling cover the appreciation side.
• No subjective "location quality" score. Plenty of tools muddy the financial verdict with a neighborhood-vibes rating. We don't — location quality is what you know about the market, not what an algorithm tells you.
• No partial credit. Strong requiresall threethresholds. Two-out-of-three knocks you to Solid. We thought about a weighted score (that's what the Pro Deal Score does) but for the free verdict tier, hard cutoffs are easier to trust.

How to read your own verdict

When you run a property through the TrueCap analyzer, the verdict shows up on the cover of the analysis. Use it like this:

1. Strong: do a deeper diligence pass — verify the rent assumption against actual market comps, validate the property tax and insurance lines, walk the property. If the numbers hold, write the offer.
2. Solid: this is the most common acceptable verdict for a real-world deal. Stress-test rent (drop it 5-10%) and vacancy (bump it from 5% to 8%) and see if the deal stays in Solid. If it drops to Mixed under stress, factor that into your offer price.
3. Mixed: you need a specific reason to like this deal beyond the numbers — maybe the location is improving, the cosmetic value-add is obvious, you're house-hacking and the "rent" you save changes the math. Don't buy on the numbers alone.
4. Marginal / Negative: either bring the purchase price down materially, find better financing, or pass. Don't talk yourself into a Marginal deal because the property is interesting.

If you want the math behind the verdict

The underlying calculations come from lib/calc-analysis.ts— the single source of truth for cap rate, cash-on-cash, DSCR, and monthly cash flow across the entire site. Same engine drives the free analyzer, the saved-deal PDF, the share link, the dashboard, and the OG image. If you've seen the number 6.4% as the cap rate in your TrueCap analysis, that's the same 6.4% the verdict engine reads.

For deeper reading on the individual metrics, our guides on cap rate vs cash-on-cash vs DSCR and what is a good cap rate go into the "what number is good?" question one metric at a time.

FAQ

See your verdict on a real deal

The fastest way to understand the verdict is to run one. TrueCap is free — paste an address, accept the auto-filled rent / rate / tax, type purchase price. You'll see the tier within seconds, with a one-paragraph rationale built from the exact thresholds described above.

Get your verdict free