Strong rental property cash flow beats paper profits. Learn what experienced investors look for in a true long-term deal.
Ask ten investors what makes a rental property a “good deal,” and you’ll get ten different answers.
But experienced investors tend to agree on one core principle: a good rental deal is one where the property’s net cash flow comfortably covers all of its debt obligations and operating expenses, both now and over time.
Let’s break that down.
Cash Flow Comes First
At its foundation, a solid rental property produces enough net cash flow to cover all property debt and:
- Principal
- Interest
- Taxes
- Insurance
In DSCR terms, the rental income must support the loan payment without relying on the borrower’s personal income. If the property can carry itself, the deal has a strong foundation.
The Biggest Mistake Investors Make
One of the most common (and costly) mistakes investors make is underestimating expenses. Many pro formas look great on paper because they assume:
- No vacancy
- No tenant turnover
- Minimal maintenance
- No leasing or re-marketing costs
If these aren’t budgeted for upfront, even a “good deal” can quickly turn into a stressful one.
Be Honest About the True Numbers
A rental deal only works if the fully loaded expenses are accounted for. That means being honest about:
- Vacancy reserves
- Ongoing maintenance
- Turnover and re-leasing costs
- Property management (if applicable)
If, after factoring in all of these expenses, the rental income still covers 110% of the debt service, the deal is fundamentally sound.
This is where DSCR becomes a powerful filter; it forces discipline and protects investors from over-leveraging thin deals.
Think Long-Term, Not Fast Money
Rental portfolios are not a get-rich-quick strategy. They are a long-term wealth-building plan, often best viewed on a 10-year horizon or longer. The real value comes from:
- Consistent cash flow
- Loan paydown over time
- Appreciation
- Tax advantages
Investors who win in this space understand they’re building a retirement plan, not chasing short-term wins.
The Bottom Line
A “good deal” isn’t about the highest return on paper or the flashiest pro forma. It’s about durability.
If the property can:
- Cash flow
- Withstand vacancies and turnovers
- Cover all debt obligations
- Perform over a long time horizon
Then you’re not just buying a rental; you’re building wealth.
INVESTOR TAKEAWAYS
A good rental deal generates consistent net cash flow that comfortably covers all operating expenses and debt service. The property should support itself without relying on the investor’s personal income.
At a minimum, rental income should cover 100% of debt service and operating costs. Many experienced investors target at least 110% coverage (a DSCR of 1.10 or higher) to create a safety buffer for vacancies and unexpected expenses.
DSCR (Debt Service Coverage Ratio) measures whether a property’s income covers its loan payments. A DSCR above 1.0 means the property generates enough income to pay its debt. Lenders and disciplined investors use DSCR to avoid overleveraging thin deals.
Appreciation is a bonus, not the foundation. A strong rental deal should work based on cash flow alone. Long-term appreciation and loan paydown enhance returns but should not be the primary justification for buying.
Durability beats headline returns. A slightly lower but stable return over 10+ years typically outperforms aggressive projections that rely on perfect conditions.
