The tool calculates two important measures of return on investment: Cash-on-Cash Return (CoC) and 10-Year Internal Rate of Return (IRR). To generate these numbers, first enter the property data and economic assumptions in the light blue boxes under the orange title blocks. The Property Analysis Tool will then calculate the Investment and Debt Service, the Key Financial Ratios, and generate a 10-year pro forma income and cash flow statement, shown at the bottom of this page. The calculated fields are all shown under dark blue title boxes.

For your convenience, an example representative of an existing property within Meridian Pacific’s portfolio is populated below. If you would like to use the worksheet to analyze your own property, click the “Clear Sample Data” box to remove the sample data. Required fields are denoted with a blue background and a corresponding description of each step to help you along the way. As a result, you will discover the Cash-on-Cash ROI and IRR for your property below highlighted in orange.

Please note that the key financial ratios and cash flow figures that appear in Meridian Pacific Properties’ brochures are slightly higher than the figures that are calculated in the Property Analysis Tool. This is because the brochure accounts for the effects of the special warranties that Meridian offers that improve the projected returns


On the surface calculating returns during the investment property analysis is fairly straight forward. Cash flow is simply the difference between the rental checks an investor receives every month, and the checks the investors writes to cover expenses. However, where most investors run into trouble, is when they deal with sellers of real estate investments that have a much looser definition of cash flow, or make unrealistic assumptions relating to rental income or expenses. The most common elements of cash flow that are misstated are rental income, which are overstated, or expenses which are understated, or omitted entirely.

Expenses for an investor come in two forms, fixed costs and variable costs. Fixed costs of ownership are items like annual property taxes, insurance, HOA fees, property management fees and debt service if a loan was used during the acquisition. The variable costs are the items that many proformas will understate or leave off completely from a cash flow analysis. Cash flow returns need to include reserves for both vacancy and maintenance every year, as these are expenses that, regardless of the home, location, or price, will occur over time. Lastly, when considering equity, or appreciation calculations, an investor must remember to include the expense of the sale, which will have commissions and closings costs required to actualize the equity gains earned.

Start Here

1. Enter Purchase Price of the property. If you are financing the property, enter the Down Payment percentage here. For most investors, it’s usually a number between 20-30%. For a cash purchase, enter 100%. Next, enter the Closing Costs & Fees. If you are working with a lender, she can give you a good faith estimate for this line item.
Acquisition and Debt Service Summary

2. Enter the Monthly Rent, Annual Property Tax and Annual Insurance Premium amounts here. The tax information is available on most county property tax websites. The insurance information is available from the insurance company. Additionally, it is important to research whether or not the property is located in a homeowner’s association that carries Homeowner’s Association (HOA) fees. If so, enter the annual amount.

Property Income and Operating Expense Data

3. In this section, you need to make some assumptions about the property as indicated to the right. Vacancy Rate: Percentage of Gross Scheduled Income (GSI) or total annual rents possible per year. Maintenance Rate: Percentage of Gross Operating Income (GOI), or the income the property receives after accounting for vacancy. Property Management Rate: Percentage of GOI, the amount of rents actually collected by the property manager. Property Appreciation Rate: Your expectation of how the property value will appreciate. Expense Inflation Rate: The general economic inflation percentage rate. Sales Costs: Costs associated with selling property when it is finally sold, including sales commissions and closing costs. This is a one-time expense.

Economic Modeling Assumptions (Per Year, for 5 Years)

4. Investment and debt service calculations: Based on the data entered above, the investor’s total cash investment, and the monthly and annual debt service is calculated here.

Investment and Debt Service Calculations
Down Payment (20.000%) $25,000
Closing Costs & Fees $4,200
Total Cash Investment $29,200
Debt Service Summary
Amount Financed (80.000%) $100,000
Debt Service (P&I), Monthly ($529)
Debt Service (P&I), Annual ($6,350)

5. Key Financial Ratios are calculated as 10-year averages to the right based on the data entered above.
10-Year Average Cash on Cash ROI – ten year average of cash on cash (CoC) return.

Cash-On-Cash ROI + Debt Pay Down – this is the combined return of the debt pay down and the cash on cash return.

10-Year Average Capitalization Rate – 10 year average of annual Net Operating Income of the property divided by its purchase price. This is the approximate annual CoC return for an all-cash purchase.

10-Year Internal Rate of Return (IRR) – the annual return accounting for the amount invested, cash flow earned through rents, pay down of the mortgage loan, and appreciation realized from the sale of the property. IRR is an overall return on investment metric that accounts for the amount and timing of all cash flows disbursed and received each year.

Key Financial Ratios (Return on Investment)
10-Year Average Cash-On-Cash ROI 10.100%
Avg 10-Year CoC
Cash-On-Cash ROI + Debt Paydown ROI 16.595%
Avg 10-Year CoC + Debt Paydown ROI, Excl. Appreciation
10-Year Average Capitalization Rate 7.440%
10-Year Avg Net Operating Income ÷ Purchase price
10-Year Internal Rate of Return 17.109%
IRR per Year

Pro Forma Income Statement and Cash Flows (10 Years) – This table models the income and expense of the property to calculate the property’s cash flow.

Pro Forma Income Statement and Cash Flow (10 Years)
Income: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Gross Scheduled Income (GSI) $13,440 $13,843 $14,258 $14,686 $15,127 $15,581 $16,048 $16,530 $17,025 $17,536
Less Vacancy Amount (6.000%) ($806) ($831) ($856) ($881) ($908) ($935) ($963) ($992) ($1,022) ($1,052)
Gross Operating Income (GOI) $12,634 $13,013 $13,403 $13,805 $14,219 $14,646 $15,085 $15,538 $16,004 $16,484
Annual Operating Expenses
Property Management (10.000% of GOI) $1,263 $1,301 $1,340 $1,381 $1,422 $1,465 $1,509 $1,554 $1,600 $1,648
Property Taxes $1,500 $1,545 $1,591 $1,639 $1,688 $1,739 $1,791 $1,845 $1,900 $1,957
Insurance $800 $824 $849 $874 $900 $927 $955 $984 $1,013 $1,044
Repairs & Maintenance (6.000% of GOI) $758 $781 $804 $828 $853 $879 $905 $932 $960 $989
HOA $200 $206 $212 $219 $225 $232 $239 $246 $253 $261
Total Operating Expenses $4,521 $4,657 $4,797 $4,941 $5,089 $5,242 $5,399 $5,561 $5,728 $5,899
Net Operating Income (NOI) $8,112 $8,356 $8,606 $8,864 $9,130 $9,404 $9,686 $9,977 $10,276 $10,585
Less Debt Service ($6,350) ($6,350) ($6,350) ($6,350) ($6,350) ($6,350) ($6,350) ($6,350) ($6,350) ($6,350)
Before-Tax Cash Flow (BTCF) $1,762 $2,005 $2,256 $2,514 $2,780 $3,054 $3,336 $3,627 $3,926 $4,234

10 Year Cash Flow – This table shows the cash flows used to determine the Internal Rate of Return (IRR).

10 – Year Cash Flow
Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Down Payment ($25,000)
Closing Costs ($4,200)
Annual Cash Flow $1,762 $2,005 $2,256 $2,514 $2,780 $3,054 $3,336 $3,627 $3,926 $4,234
Appreciation Final Equity $51,325
Debt Paydown $18,966
Return of Down Payment $25,000
Sales Costs ($12,343)
Net Cash Flow ($29,200) $1,762 $2,005 $2,256 $2,514 $2,780 $3,054 $3,336 $3,627 $3,926 $87,182



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