Cap rate (capitalization rate) is your net operating income (NOI) divided by the property purchase price, expressed as a percentage. NOI is annual gross rent minus operating expenses (taxes, insurance, maintenance, management) — before debt service. Cap rate lets you compare properties regardless of how they're financed. A higher cap rate means more income relative to purchase price.

DSCR (Debt Service Coverage Ratio) is your NOI divided by your annual mortgage payment. A DSCR above 1.0 means the property generates enough income to cover the debt. DSCR lenders typically require 1.2 or higher. If your DSCR is below 1.0, the property cash flows negative — the rent doesn't cover the mortgage even before maintenance or vacancy.

Use conservative assumptions: 2-3% annual appreciation is roughly in line with long-run historical averages for most markets. High-growth markets have exceeded this, but underwriting a deal to 5-6% appreciation assumptions is speculative investing, not income investing. The calculator lets you set your own rate so you can stress-test with 0% appreciation and see if the deal still works.

The four most commonly underestimated expenses are vacancy (budget 8-10% of gross rent even in tight markets), maintenance and capex (budget 10-15% of gross rent for older properties), property management (8-10% of gross rent if you don't self-manage), and CapEx reserves for big-ticket items like roofs and HVAC. The calculator includes all four as configurable line items.