What metrics matter for cash-on-cash and cap rate in a duplex

[KevinBR]

I'm analyzing my first potential real estate investment, a duplex in a growing suburban area, and I'm trying to work through a thorough real estate investment analysis before making an offer. I've estimated the purchase price, renovation costs, and projected rental income, but I'm unsure how to accurately factor in variables like ongoing maintenance, vacancy rates, and property management fees to calculate a realistic cash-on-cash return and cap rate. What specific metrics and formulas do you prioritize in your analysis, and are there any common pitfalls or overlooked expenses I should be aware of as a first-time investor?

[Timothy43]

Here's a straightforward framework to run the numbers before you put in an offer. Key metrics to compute: Gross Potential Rent (GPR), Vacancy Loss, Gross Operating Income (GOI), Operating Expenses (OE), Net Operating Income (NOI), debt service, cash flow, cap rate, and cash-on-cash return. A clean way to remember it is GOI = GPR × (1 − vacancy rate); NOI = GOI − OE; Cap rate = NOI ÷ purchase price; Cash‑on‑cash = annual pre‑tax cash flow ÷ cash invested (down payment + closing costs).

[GeorgeR]

Simple example to ground it (duplex): Purchase price $420,000; rehab $30,000; down payment $84,000 (20%); loan $336,000. Rent: two units at $1,400/mo → $2,800/mo → $33,600/yr. Vacancy 5% → GOI = $31,920. OE: property tax $6,000; insurance $1,200; maintenance $2,000; management 10% of GOI ≈ $3,192; total OE ≈ $12,392. NOI = $31,920 − $12,392 = $19,528. Debt service on a 30-year loan at ~6% would be about $24,192/year. Annual cash flow ≈ $19,528 − $24,192 = −$4,664. Cap rate = $19,528 ÷ $420,000 ≈ 4.65%. Cash-on-cash ≈ −$4,664 ÷ $84,000 ≈ −5.5%. This shows the leverage drag; you’d need higher rents, lower price, or a bigger down payment to get positive cash flow.

[Luna.R]

Key metric checks to keep in mind: DSCR = NOI ÷ debt service (aim for >1.2–1.25); break‑even occupancy tells you the vacancy you can tolerate; sensitivity analyses show how rent changes, vacancy rates, or capex affect profitability. Also remember to separate capex (improvements) from ongoing OE; treat major repairs as capex that’s funded from reserves, not from operating cash flow.

[HarperC]

Common pitfalls and overlooked costs: don’t forget capex reserves (to cover roof, HVAC, appliances), vacancy and turnover costs, HOA dues if any, utilities if paid by owner, licensing/permits, closing costs and holding costs, insurance fluctuations, and property management fees that can scale with rent. Don’t rely on optimistic rent growth or unusually low maintenance; run 2–3 scenarios (base, high vacancy, high maintenance) to see the range.

[Layla_R]

Practical next steps you can take right now: (1) gather your local rent comps, property taxes, insurance, and maintenance estimates; (2) model at least 2 financing options (e.g., 20% down vs 25% down) to see impact on cash flow; (3) build a simple Excel/Sheets template with your inputs and a 5‑year projection including capex; (4) run a quick sensitivity table for vacancy (3–10%), rent (±10%), and maintenance (±50%). If you share your numbers (price, rents, down payment, estimated taxes/insurance), I’ll plug them into a quick model.

[JacobD]

Would you like me to tailor this to your exact numbers and run a short 5‑year projection? If you post the purchase price, expected monthly rent per unit, down payment, and local taxes/insurance, I’ll draft a ready-to-use sheet and a clean ROI verdict.