Real estate investing is often pitched as a single number — "this property will rent for $X" — but professional real estate investors evaluate a property across four distinct return streams that compound together: rental income (cash flow), forced or natural appreciation (the property's value rising over time), mortgage paydown (tenants effectively paying down your loan for you), and tax benefits (depreciation and deductions). Looking at only one of these in isolation is how new investors end up disappointed by a property that "looked great on paper."

Before running detailed numbers on a property, experienced investors use a quick screening heuristic: monthly rent should equal at least 1% of the purchase price. A $300,000 property should rent for roughly $3,000/month or more to be worth a closer look. This rule isn't a guarantee of profitability — it's a filter to avoid wasting time running full numbers on properties that are obviously priced too high relative to achievable rent.

NOI deliberately excludes your mortgage payment because it's meant to measure the property's pure operating performance, independent of how you happened to finance it. This makes NOI the right metric for comparing two different properties, even if one is financed with cash and another with a mortgage.

Consider a $350,000 rental property with a 25% down payment ($87,500), financed at 7% over 30 years, renting for $2,500/month.

The mortgage on $262,500 at 7% over 30 years runs roughly $1,746/month, or $20,952/year. Subtracting this from NOI gives an annual cash flow of −$3,932 — meaning this particular property is actually cash flow negative at these assumptions, despite a respectable cap rate. This is a common and important discovery: a property can look attractive on a cap-rate basis while still draining cash from your pocket every month once financing is factored in, which is exactly why both metrics need to be checked together.

Total cash invested includes your down payment plus closing costs (typically 2-5% of purchase price). This metric tells you the return on the actual cash you put at risk, which is often far more meaningful to an investor using leverage than cap rate alone. A property with a modest cap rate can still deliver an excellent cash-on-cash return if financed favorably — and vice versa.

As a rough guide, many real estate investors look for a cap rate above 5%, a cash-on-cash return above 8%, and positive monthly cash flow after every single realistic expense category above — not just the obvious ones like mortgage and tax.