How We Calculate Your Numbers

1. Core Financial Formulas

The foundation of every analysis — mortgage payments and amortization schedules calculated to the penny.

Monthly Mortgage Payment

Payment = P x r x (1 + r)^n / ((1 + r)^n - 1)

Where:
  P = Loan principal (purchase price x loan-to-value %)
  r = Monthly interest rate (annual rate / 12 / 100)
  n = Total payments (loan term in years x 12)

This is the standard amortization formula used by every mortgage lender. For a 0% interest rate, the payment is simply the principal divided by the number of months. If the principal or term is zero, the payment is $0 (all-cash purchase).

Amortization Schedule

For each month (1 through n):
  Interest   = Remaining Balance x Monthly Rate
  Principal  = Monthly Payment - Interest
  Balance    = Previous Balance - Principal (min $0)

The schedule tracks every payment split between principal and interest for the full loan term. The minimum $0 balance guard prevents floating-point rounding errors from producing a negative balance in the final months.

Total Cash Invested

Cash Invested = Down Payment + Rehab Cost + Closing Costs + Loan Points

Where:
  Down Payment  = Purchase Price - Loan Amount
  Closing Costs = Purchase Price x Closing Cost %
  Loan Points   = Loan Amount x Points %

This is your total out-of-pocket cost to acquire the property — the denominator for Cash-on-Cash Return and Flip ROI.

2. Key Investment Metrics

Eight metrics that professional investors use to evaluate every deal. CasaWise computes all eight simultaneously.

Net Operating Income (NOI)

NOI = Effective Gross Rent - Total Operating Expenses

Effective Gross Rent = Monthly Rent x 12 x (1 - Vacancy Rate %)
Total Expenses = Fixed Costs + Revenue-Based Costs + CapEx Reserve

Fixed Costs     = (Property Tax + Insurance + HOA x 12) x Expense Modifier
Revenue Costs   = Gross Rent x (Maintenance % + Management %) x Expense Modifier
CapEx Reserve   = Gross Rent x CapEx % x CapEx Modifier

NOI is the income your property generates before debt service. Fixed costs (tax, insurance, HOA) and revenue-based costs (maintenance, management) are adjusted by the scenario's Expense Modifier. The CapEx reserve uses its own separate CapEx Modifier — because in a worst case, big-ticket repairs tend to cost significantly more than everyday operating expenses.

Cash Flow, Cap Rate, CoC, DSCR, GRM, and the Rent Ratio

Annual Cash Flow    = NOI - Annual Debt Service
Monthly Cash Flow   = Annual Cash Flow / 12
Annual Debt Service = Monthly Mortgage Payment x 12

Cap Rate            = (NOI / Purchase Price) x 100
Cash-on-Cash Return = (Annual Cash Flow / Total Cash Invested) x 100
DSCR                = NOI / Annual Debt Service   (all-cash -> 99.9)
GRM                 = Purchase Price / Annual Gross Rent
Rent Ratio          = (Monthly Rent / Purchase Price) x 100

Cash flow is what you actually keep after paying the mortgage — the single most important number for buy-and-hold investors. Positive cash flow means the property pays for itself and puts money in your pocket.

Cap rate measures return independent of financing: what the property earns as a percentage of its value, regardless of how you financed it. Higher cap rates generally indicate higher returns but often come with higher risk. A 6-8% cap rate is considered strong in most markets.

Cash-on-cash measures the actual return on your invested capital and, unlike cap rate, accounts for leverage. A deal with 20% down and a strong cash-on-cash return means your money is working harder than it would in stocks or bonds. Professional investors typically target 8-12%+.

DSCR tells lenders — and you — whether the property generates enough income to cover its mortgage. A DSCR of 1.0 is break-even and most lenders require 1.20+. Below 1.0 the property loses money before any maintenance surprise, which is a critical warning sign.

GRM is a quick-screening metric — how many years of gross rent it takes to recoup the purchase price. Lower is better. It ignores expenses entirely, so treat it as a rough filter rather than a decision metric; under 12 generally signals a deal worth deeper analysis.

Rent ratio is the modern reading of the classic "1% rule" — the most widely used quick filter in real estate investing, and largely out of reach at today's prices. Rather than pass/fail it, the Deal Score grades it on a curve where ~0.65% is par and approaching 1% is excellent.

Depreciation & Tax Savings

Annual Depreciation = (Purchase Price x 80% + Rehab Cost) / Depreciation Years
Year 1 Tax Savings  = (Annual Depreciation + Year 1 Interest) x Tax Bracket %

Projection years use the ACTUAL interest from the amortization schedule.

The IRS allows you to depreciate the building portion of your investment (typically 80% of purchase price — land is not depreciable). Rehab costs are 100% depreciable as improvements. Combined with mortgage-interest deductions this can significantly reduce your tax liability, and the projection uses your actual amortization interest each year rather than a flat estimate.

3. Three-Scenario Engine

Every property is analyzed simultaneously under three scenarios. When market data is available for your location, the Base Estimate uses real local appreciation and rent growth rates.

4. Year-by-Year Projections

For each year (1 through projection horizon):

  Property Value  = Previous Value x (1 + Appreciation Rate)
  Monthly Rent    = Previous Rent x (1 + Rent Growth Rate)
    Year 1: rent stays at input value (lease locked)
    Year 2+: rent grows annually

  Expenses (inflated each year):
    Property Tax  -> 2% per year
    Insurance     -> 3% per year
    HOA           -> 3% per year
    Maintenance / Management / CapEx -> track with current rent

  Equity        = Property Value - Loan Balance (from amortization)
  Annual Return = Cumulative Cash Flow + Appreciation + Cumulative Tax Savings

Year 1 rent is locked — reflecting the reality that your first tenant signs at the listed rate. Expenses inflate independently; revenue-based costs scale with growing rent.

5. Internal Rate of Return (IRR)

Cash Flow Series:
  Year 0:     -Total Cash Invested (initial outlay)
  Year 1..N:  Annual Cash Flow + Annual Tax Savings
  Final Year: + Net Sale Proceeds

Net Sale Proceeds = Property Value x (1 - Selling Cost %) - Remaining Loan Balance
Selling Cost % defaults to 6% (standard agent + closing costs)

Find the rate r where:  NPV = SUM[ CF(t) / (1 + r)^t ] = 0   (t = 0..N)

No closed-form solution exists - it is solved iteratively via
Newton-Raphson:   r(next) = r(current) - NPV(r) / NPV'(r)
repeated up to 100 iterations until NPV < $1.

This is the same approach used by Excel's IRR function and HP financial calculators. Results outside the -100% to +500% range are flagged unreliable and not displayed; if the solver fails to converge, CasaWise reports "N/A" rather than a misleading number.

6. Exit Strategy Analysis

Buy & Hold is the default strategy and runs on every tier. The two strategies below are selected on the Deal Inputs tab and are part of the Ultimate AI Investors tier — as is the 70% Rule check, which only evaluates a fix-and-flip deal.

Fix & Flip

Flip Profit = ARV - Purchase Price - Rehab Cost
              - Selling Costs - Holding Costs
              - Loan Points - Closing Costs

Selling Costs = ARV x Selling Cost %
Holding Costs = (Monthly Mortgage + Prorated Tax + Prorated Insurance) x Hold Months
Flip ROI      = (Flip Profit / Cash Invested) x 100

ARV = After Repair Value (or Purchase Price + Rehab if not specified)

BRRRR (Buy, Rehab, Rent, Refinance, Repeat)

Refinance Loan Amount = ARV x Refinance LTV %
Cash Recouped         = Refinance Loan Amount - Original Loan Amount
New Monthly Payment   = PMT(Refinance Loan, Refinance Rate, 30 years)

7. Deal Risk Score

The Deal Score grades five metrics on their own 0-100 curves and takes a weighted average. Each curve is piecewise-linear between three anchors — a floor (scores 0), a midpoint (scores 50) and a ceiling (scores 100) — and flat outside them. Anchors are calibrated to roughly a 7% rate environment, not to pre-2022 "cheap money" rules of thumb: our projections already deduct vacancy and CapEx reserves from income before scoring, so aspirational thresholds would penalize the same deal twice. If the IRR cannot be computed, its weight is redistributed across the other four components.

8. Standing Assumptions

9. Data Sources

CasaWise pulls live data from authoritative sources — we never use AI-generated numbers for financial rates.

10. Frequently Asked Questions