Rental Analysis: The Five Numbers That Decide Every Deal
Five inputs decide almost every rental deal, and two of them are traps that catch nearly every beginner.
You do not need a sixty-row spreadsheet to know whether a rental works. Five numbers decide almost every deal: purchase price, market rent, property taxes, insurance, and vacancy. Everything after that is refinement.
What matters is getting the five honest. Two of them, rent and taxes, are traps, and both flatter the deal in the same direction: better than it really is.
The five, in the order to check them
Purchase price
The anchor. Every ratio downstream divides by it, and it is the only one of the five you negotiate rather than measure.
Market rent
The largest number in the equation and the easiest to flatter. Use what comparable units actually leased for, adjusted for concessions, not what landlords are asking.
Property taxes
Never the seller's bill. Pull the county's rate and apply it to your price, because their bill reflects their old basis, not your purchase.
Insurance
Get a real quote for the address, not a rule of thumb. Coastal, hail, and flood exposure move the premium several-fold.
Vacancy
Not optional, even with a great tenant. One turnover a year with a month of downtime is roughly eight percent off the top. Budget it every year; some years you will not need it, and that is what makes the average work.
In many counties the assessment resets when the property sells, so your tax bill can jump sharply the year you buy. The listing's expense numbers reflect the seller's basis, not yours. In high-tax states this single correction kills deals that looked fine on the listing's numbers.
Honest rent means achieved rent
Rent gets a full lesson of its own, but it earns its trap label here because it is the top line every other metric keys off. Asking rents are opinions. Signed leases, adjusted for concessions, are facts.
| Months on a one-year lease | 12 |
| Concession | one month free |
| Months of rent actually collected | 11 |
| Real rent vs asking (11 of 12 months) | roughly 8% lower |
One free month quietly cuts the real rent to eleven twelfths of asking, the same roughly eight percent haircut as a month of vacancy. Underwrite at the asking number and every downstream metric inherits that overstatement, a full month of rent that was never coming.
The discipline
Run the five before you get attached. If the deal does not work on honest rent, reset taxes, quoted insurance, and real vacancy, it does not work, and no amount of appreciation optimism rescues a bad rent-to-expense ratio.
Appreciation is the bonus on a deal that already stands. It cannot be the load-bearing wall.
Take a listing you have been eyeing and run the five honestly, especially the tax reset at your price. Then run the same address through the rental report and compare inputs line by line. Anywhere you disagree with the tool, one of you has a reason; find out which.
Put this lesson to work on a live address.
Run all five on any address
