The 6-Step Checklist for Running the Numbers on a Rental

The full walkthrough I run on a listing before deciding whether to write an offer, from the first gut check to the red flags that kill a deal.

Every listing I’ve seriously considered has gone through the same sequence of checks before I decided whether to move forward. None of the individual steps are complicated, but skipping one is how people end up owning a property that looked fine on the surface and turns out to be a slow leak. This is that sequence, in order.

If you’re new to the idea of buying a property you live in and rent part of, start with What Is House Hacking? first — this post assumes you already know the concept and want the evaluation process.

Step 1: the 30-second gut check

Before doing any real math, run the 1% rule: does the monthly rent (all units combined) come to at least 1% of the purchase price? A $300,000 duplex clearing $3,000/month in combined rent passes; one clearing $1,800/month is already a stretch before you’ve run a single other number. The 1% rule isn’t a buy signal on its own — plenty of good deals fall short of it and plenty of properties that pass it are still bad deals — but it’s a fast way to decide whether a listing is worth the twenty minutes the rest of this checklist takes.

Step 2: cash flow

If the gut check passes, run the actual cash flow: gross rental income minus operating expenses minus debt service. I’ve written the full mechanics of this, with a worked example, in How to Calculate Cash Flow on a Rental Property. The short version: don’t skip the reserves (repairs, vacancy, capex) just because the listing agent’s flyer did.

Step 3: effective housing cost, if you’re living there

If you’re house hacking rather than buying a pure rental, cash flow alone will usually look negative or thin, because it doesn’t credit you for the rent you’re not paying elsewhere. The number that actually matters is effective housing cost: your full payment minus the rent you collect, compared against what a comparable place would cost you to rent. A deal with negative cash flow by investor math can still be the best housing decision available to you.

Step 4: cash-on-cash return

Cash flow tells you the monthly dollar amount; cash-on-cash return tells you whether that amount is worth the cash you had to put in to get it. Divide your annual cash flow by your total cash invested (down payment, closing costs, and any immediate repairs) to get a percentage you can compare across properties, or against what that same cash would earn parked somewhere else. I cover this in full in Cash-on-Cash Return, Explained.

Step 5: the red flags that don’t show up in the numbers

A property can clear every number above and still be a bad buy. Before you go further, check:

• Deferred maintenance. Roof age, furnace age, water heater age, panel type (older fuse or knob-and-tube wiring is a real cost). A home inspection catches most of this, but a walkthrough with your own eyes catches obvious signs early.
• Achievable rent vs. listed rent. Don’t trust the seller’s claimed rent roll. Check comparable listings in the actual neighborhood for what similar units are renting for right now.
• Insurance cost in that specific area. Flood zones, wildfire zones, and older roofs can push insurance high enough to erase a deal’s cash flow on their own. Get a real quote before you’re under contract, not after.
• Zoning and legal-unit status. Confirm the second unit is legally permitted as a rental, not an unpermitted conversion — this affects financing, insurance, and your ability to rent it out at all.
• Existing tenants, if any. Inheriting a tenant means inheriting their lease terms, and possibly a below-market rent you can’t raise for a while.

Step 6: model it forward

A property that pencils out in year one isn’t the same as a property that’s still a good hold in year ten. Rent grows, your loan balance amortizes down, and if you eventually move out and rent both units, the whole picture changes again. Run the listing through the long-term projection tool to see what it looks like 5, 10, and 30 years out before you decide.

How I screened my own duplex

I ran my $470,000 duplex through this exact sequence before making an offer: 1% rule first (it was close, not a clean pass), then cash flow as a pure rental (thin), then effective housing cost as an owner-occupant (the number that actually sold me on it), then a walkthrough for deferred maintenance that turned up an aging boiler I budgeted to replace within the first year — and did. None of the steps were optional. The boiler alone would have been a nasty surprise if I’d skipped the walkthrough and just trusted the numbers.

Run it yourself

Put a real listing into the free house hacking calculator to get cash flow, effective housing cost, and cash-on-cash return in one pass, then run it through the projection tool to see how it holds up over time. Walking every listing through the same six steps is what turns “does this feel like a good deal” into an actual answer.

For a look at how the free calculator stacks up against paid options, see our free alternative to the BiggerPockets calculators.

When you get to the return step, it helps to have a benchmark. See what is a good cash on cash return.

Two free tools shortcut the hardest steps here: the rent comp worksheet turns five real listings into a defensible rent estimate, and if the deal involves a renovation and refinance, the free BRRRR calculator runs that whole cycle.