Long-Term Rentals
The full buy-and-hold analysis: effective income after vacancy, honest operating expenses, debt service, and the two headline metrics — cash-on-cash return and cap rate — in one view. This is the model Austin runs on every long-term Indianapolis deal before making an offer.
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Every figure updates as you type — the defaults are typical Indianapolis numbers.
The full underwrite
Indianapolis benchmarks
6–9%
Cap rate range many Indianapolis rentals are producing in 2026
8–12%
Cash-on-cash return most investors target after debt service
5–8%
Vacancy assumption Indianapolis investors build in
35–50%
Operating expenses as a share of effective gross income (reserves included)
Every number in the tool above comes from these formulas — nothing hidden.
Effective gross income
EGI = (gross rent + other income) × (1 − vacancy rate)
Other income is everything from pet rent to utility bill-backs. Vacancy turns the paper rent into the rent you actually collect.
Net operating income
NOI = EGI − operating expenses
Operating expenses never include the mortgage payment — NOI is the property’s earning power before financing, which is why lenders and appraisers live by it.
Cap rate
Cap rate = NOI ÷ purchase price (or total project cost)
The unlevered return: what the property earns on its price if you paid all cash. It lets you compare deals across prices and neighborhoods on equal footing.
Annual cash flow
Cash flow = NOI − annual debt service
Debt service is principal and interest only — taxes and insurance already sit in operating expenses above.
Cash-on-cash return
Cash-on-cash = annual pre-tax cash flow ÷ total cash invested
Cash invested includes down payment, closing costs, and rehab — everything that left your account to own the deal. This is the return on your actual dollars.
Every listing comes with a story: "motivated seller," "rents below market," "just needs paint." Underwriting is the discipline of replacing the story with arithmetic. The model answers exactly one question — what does this property do at realistic rents and honest expenses? — and it answers it before you’ve spent a dollar or fallen in love.
The sequence never changes: effective income, then operating expenses, then NOI, then debt, then cash-on-cash. Deals that fail usually fail at the same two places — income that was never real, and expenses that were never counted. This model makes you write both down.
Gross potential rent is the number in the listing. Effective income is what’s left after vacancy — 5–8% is the standard assumption for Indianapolis single-family rentals. A single vacancy month on a 12-month lease costs 8.3% of annual income all by itself; the 5–8% band simply assumes you won’t re-lease instantly every time.
Add other income honestly: pet rent, late fees, utility bill-backs, and storage all count and they’re often the difference between a thin deal and a workable one. Then verify the rent itself — three genuine comparables within a mile at the same beds, baths, and condition. A $100 overestimate compounds into a 6–8% error in NOI and a full percentage point of phantom cap rate.
Cap rate is the unlevered return: NOI divided by price. Cash-on-cash is the levered return: cash flow divided by cash in. They measure the same property from two sides of the mortgage, and the gap between them is the entire effect of financing.
When debt costs less than the cap rate, leverage works for you: a 7% cap rate property financed at 6% produces a cash-on-cash above 7%. When debt costs more than the cap rate, leverage works against you — at an 8% interest rate that same property drags cash-on-cash under the cap. This is the mechanic that decides whether a mortgage helps or hurts, and why the same deal can be a yes at 6% financing and a no at 8%.
Indianapolis rentals in 2026 commonly pencil in the 6–9% cap rate range, with cash-flow neighborhoods at the top and premium suburbs at the bottom. Most investors target 8–12% cash-on-cash; below 6% needs a specific reason — an appreciation thesis, a 1031 deadline, or a documented value-add plan.
Rental value is capitalized income, which makes small rent gains surprisingly valuable. Raise NOI by $1,200 a year — a $100 monthly rent bump — and at a 7% cap rate you’ve created roughly $17,000 of value. Add a washer/dryer, finish a legal unit, or bill back utilities and the arithmetic repeats.
This is also the honest test of a "value-add opportunity" listing: if the claimed rent upside requires $20,000 of work to capture $50 of monthly rent, the value created barely covers the capital spent. Run the improvement through this model before paying the seller for their imagination.
In 2026, many Indianapolis rentals produce roughly 6–9% cap rates depending on neighborhood, condition, and price point. Cash-flow neighborhoods on the east and south sides tend to run higher; premium areas like Carmel and Zionsville trade lower cap rates in exchange for appreciation and stability. A 6% cap on a new-ish suburban home and a 9% cap on a 1920s bungalow are different risk profiles, not different qualities of deal.
Cap rate is the property’s return before financing (NOI ÷ price). Cash-on-cash is your return on the actual cash you invested after the mortgage (annual cash flow ÷ total invested). Cap rate compares properties; cash-on-cash tells you what your money earns. Leverage with debt cheaper than the cap rate raises cash-on-cash above the cap rate — expensive debt drags it below.
It’s a screen, not an underwrite. The rule of thumb — operating expenses including capital items run about half of gross rent — catches wild underestimates fast, but real ratios swing from 35% on new construction to 60%+ on older homes with owner-paid utilities. Use it to sanity-check this model’s output, not to replace it.
A common floor is 3–6 months of full carrying cost (payment plus taxes, insurance, and HOA) per unit, separate from your rehab budget. The monthly capital reserve inside this model — part of your 10–15% maintenance-plus-capex band — builds the longer-term cushion for roofs, HVAC, and plumbing.
Ask for current leases, 12 months of deposit ledgers or bank statements, and the last two years of tax bills — then cross-check taxes against the county auditor yourself. Look for rents only a related tenant would pay, and leases that expire the month after closing. If a seller won’t document income, underwrite it as zero.
Yes. The 8–10% is the market price of the work, and including it keeps two things honest: your return is comparable to any other investor’s, and you can see exactly what hiring a manager would cost the deal later. Many self-managers discover the discount isn’t worth the phone calls — the model lets you price that choice.
The 1% rule says monthly rent should equal at least 1% of the purchase price. It’s a fast screen — many solid Indianapolis deals today run 0.6–0.9% and still cash flow well with honest expenses modeled. Use our Simple Pro Forma to screen quickly, then this model to underwrite the finalists properly.
These calculators are educational tools. Good underwriting still depends on accurate rents, expenses, financing, repairs, vacancy, management, and local market judgment.
Related calculators.
Simple Pro Forma
A one-page deal screen. Use it to triage 20 listings in 30 minutes and figure out which ones deserve a real underwrite.
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Cash Flow Model
Monthly income vs. expense projection on a single property. The clearest read on whether a deal pencils month-to-month.
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Full IRR Calculator
Multi-year IRR projection with loan payoff and exit proceeds. The one to use when you want the full lifetime return on a deal.
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