How to compare two rental properties
The cheaper property is not the better deal often enough that comparing on price is close to guessing.
The short answer
Compare on net operating income and cap rate first, because those describe the buildings independently of how you would finance them, then compare cash flow and cash-on-cash for the deal you would actually do. Comparing on price, or on rent, or on either one alone, reliably picks the wrong property.
The formula
effective income = gross rent x (1 - vacancy%)
operating expenses = tax + insurance + HOA + maintenance + management
NOI = effective income - operating expenses
cap rate = NOI / purchase price
then, for your deal: cash flow = NOI/12 - mortgage payment
Every line has to be filled in for both properties on the same basis. A comparison where one has a maintenance allowance and the other does not is worse than no comparison, because it looks rigorous.
Worked example
Property A at $285,000 renting for $2,150. Property B at $240,000 renting for $1,900, in a higher-tax area with a $180 monthly HOA. Both at 6% vacancy, 8% maintenance and 8% management:
A: gross 25,800 → effective 24,252
A: tax 2,900 + ins 1,400 + maint 2,064 + mgmt 1,940 = 8,304
A: NOI = 15,948 → cap 5.60%
B: gross 22,800 → effective 21,432
B: tax 4,800 + ins 1,250 + HOA 2,160 + maint 1,824 + mgmt 1,715 = 11,749
B: NOI = 9,683 → cap 4.03%
Property B costs $45,000 less and produces $6,265 a year less. It would take just over seven years of the price saving to make up one year of the income gap, and you never stop paying the HOA.
The lines people fill in unevenly
Maintenance. It is tempting to enter a low number for the newer property and a realistic one for the older, when in practice both should carry a percentage until you have actual history. Age belongs in the capital expenditure reserve rather than in a hunch about monthly repairs.
Management, when you plan to self-manage. Leaving it at zero on both is defensible if you are consistent, but it flatters the property that will take more of your time, which is usually the cheaper one in the worse area.
HOA and similar fees, which frequently do not appear in a listing at all and can be a fifth of the operating cost.
What cap rate will not tell you
Whether the rents are real. A property let at above-market rent to a tenant who is about to leave has a flattering NOI for a few more months, and comparing that against a property let below market is comparing a peak to a trough.
Check both against local asking rents before trusting either. If a property only works at its current rent, you are buying a tenancy rather than a building.
When the worse number is still the right buy
Location and tenant quality do not appear in any of these figures and they drive the outcomes that hurt most: void periods, arrears, damage, and how quickly you can sell if you need to.
The point of doing the arithmetic is not that the higher cap rate always wins. It is that you find out what the lower one is costing you, so if you choose it anyway you are paying a price you can name.
What this leaves out
- Before tax and before financing at the NOI stage, by design. Your tax position and your loan are yours, not the property's.
- No appreciation or rent growth. Both are forecasts and adding them to a comparison usually just amplifies whichever property you already preferred.
- Percentage-based maintenance and management are starting points. Real figures from your own portfolio beat them.
This arithmetic is free to run in your browser — no signup, nothing held back.
Open the free calculatorCommon questions
- Is a higher cap rate always better?
- No. Cap rates are partly a price on risk, so a higher number often means a market with more vacancy, slower sales or weaker tenant demand. It is a reason to look harder at why, not an automatic win.
- Should I compare on price per square foot?
- For rentals, rarely. It tells you something about resale value and almost nothing about income, and two properties of the same size can command very different rents on the same street.
- How many properties should I model before buying?
- Enough that you recognise a normal expense ratio in your market when you see one. The first three are slow and mostly teach you what you were forgetting; after that the modelling gets fast and the screening gets accurate.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
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Last reviewed 22 August 2026