This is the full multi-year pro forma: year-by-year rent growth, a fixed mortgage payment, equity build from amortization, a net-sale calculation, and an IRR across the whole cash-flow series. At national-median price and rent, financed at 6.71% with 2.9% annual rent growth and zero assumed appreciation, five years of negative cash flow (−$9,695 cumulative) is still outweighed by equity paydown at sale, producing a small positive total profit of $6,204 — a 1.33% IRR that exists entirely because of financing and rent growth, not a price bet.
How the year-by-year pro forma is built
This calculator grows gross rent by a compounding rent-growth rate each year, holds the mortgage payment fixed (as a real fixed-rate loan does), and inflates operating expenses by a separate expense-inflation rate. Each year's NOI minus fixed debt service is that year's cash flow; those cash flows accumulate across the hold. In the sale year only, the module adds net sale proceeds — projected property value (compounded at the appreciation rate you set) minus selling costs minus the remaining loan balance — onto that year's cash flow before computing an internal rate of return across the full series, starting with the initial cash invested as a negative outflow in year zero.
Three separate growth rates are doing three separate jobs here: rent growth compounds the top line, expense inflation compounds operating costs, and appreciation compounds the projected sale price. Setting any one of them to zero does not silence the other two — that is deliberate, because rent growth and price appreciation are genuinely different phenomena with different evidence behind them.
Worked example — national medians, no appreciation assumed
Purchase price $343,800 and monthly rent $1,531 are the Census Bureau's Q2 2026 national median asking sale price and median asking rent; the rate is Freddie Mac's 6.71% 30-year PMMS figure for the week ending September 3, 2026; down payment is an illustrative 25% ($85,950, with $0 closing costs and rehab so cash invested equals the down payment exactly); vacancy is the Census 7.3% national rate; operating expenses and selling costs are $0 because neither has a verified national figure; rent growth is set to the BLS CPI Rent of Primary Residence twelve-month change of 2.9%; appreciation is deliberately set to 0%, because this page does not forecast future home prices.
| Year | Gross rent | NOI | Cash flow | Equity |
|---|---|---|---|---|
| 1 | $18,372 | $17,031 | −$2,956 | $88,719 |
| 2 | $18,905 | $17,525 | −$2,462 | $91,680 |
| 3 | $19,453 | $18,033 | −$1,954 | $94,846 |
| 4 | $20,017 | $18,556 | −$1,431 | $98,230 |
| 5 | $20,598 | $19,094 | −$893 | $101,849 |
Direct output of the module's proForma() function. Cash flow improves every year even though the mortgage payment never changes, because rent grows 2.9% annually while debt service is fixed — the mechanism that eventually turns a negative deal positive if held long enough.
At sale in year 5, net sale proceeds equal projected value ($343,800, unchanged at 0% appreciation) minus the remaining loan balance, or $101,849 — the same figure as year-5 equity, since selling costs are $0 in this example. Total cash flow across the hold is −$9,695. Total profit — cumulative cash flow plus net sale proceeds minus the $85,950 cash invested — comes to $6,204, and the IRR across the full cash-flow series (−$85,950 in year zero, then each year's cash flow, with the $101,849 sale proceeds added to year 5) is 1.33%. It is a thin, mostly break-even return, and it exists only because rent growth narrows the cash-flow gap and amortization builds equity — remove the 2.9% rent growth and the deal would look meaningfully worse.
The 1% rule, checked against the same numbers
This calculator also reports the 1% rule — monthly rent as a percentage of all-in cost (purchase price plus rehab) — because it is a common quick screen. At $1,531 monthly rent against $343,800 all-in cost, this deal computes at 0.45% of cost, well under the 1% threshold, and the calculator's own passesOnePercent flag returns false. This is a useful illustration of why the 1% rule and the actual multi-year IRR can point in different directions: the same deal that fails the 1% screen by a wide margin still produces a mildly positive total profit over five years once financing, rent growth, and amortization are modeled properly. The rule is a fast filter, not a substitute for the pro forma.
What moves the IRR the most
Because the mortgage rate sets a fixed monthly payment for the full hold while rent grows every year, the gap between the financing rate and the rent-growth rate is what determines whether cash flow ever turns positive within a given hold period — in the example above it does not, within five years, at 6.71% financing against 2.9% rent growth. Extending the hold period lets rent growth keep compounding against a debt service that never changes, so a longer hold at the same rate and growth assumptions produces a higher IRR, all else equal — this is the mechanism, not a guarantee, since it assumes the 2.9% rate holds for the full period.
What this IRR does not capture
- ·Taxes and depreciation. This is a pre-tax IRR. Residential rental depreciation under IRS Publication 527 reduces taxable income each year the property is held and creates unrecaptured Section 1250 gain, taxed at a maximum 25% rate, at sale — see the rental depreciation calculator for that separate math.
- ·Any appreciation forecast. The 0% appreciation used above is a deliberate choice to isolate financing and rent growth, not a prediction that home prices will be flat. Enter your own assumption and understand it is exactly that — an assumption, not a sourced figure.
- ·Refinancing or a change in financing mid-hold. The model assumes one loan at one rate for the entire hold period.
Methodology
The worked example runs this calculator's own proForma() function at the Census Bureau's Q2 2026 median asking sale price ($343,800) and median asking rent ($1,531), the same release's 7.3% national rental vacancy rate, the Freddie Mac PMMS 30-year rate for the week ending September 3, 2026 (6.71%), and the BLS CPI Rent of Primary Residence twelve-month rent-growth figure (2.9%, July 2025–July 2026) as the rent-growth input. Appreciation, expense inflation, and selling costs are set to 0% in the example because no verified national figures exist for any of them.
Sources
- US Census Bureau — Housing Vacancy Survey, Q2 2026 — accessed 2026-09-07
- US Bureau of Labor Statistics — CPI News Release, Rent of Primary Residence — accessed 2026-09-07
- Freddie Mac — Primary Mortgage Market Survey — accessed 2026-09-07
- IRS — Publication 527, Residential Rental Property — accessed 2026-09-07