Investment Methodology — How We Calculate
Full transparency into how we calculate every metric on this platform.
Live Example: $250,000 Property
Rent: $2,000/mo · Tax: $2,150/yr · HOA: $150/mo
| Down Payment | $75,000 |
| Cash to Close | $82,500 |
| Monthly Mortgage | $1,164 |
| Monthly Insurance | $75 |
| Maintenance | $100 |
| Vacancy Reserve | $60 |
| Total Expenses | $1,728/mo |
| Net Cashflow | $272/mo |
| Cash-on-Cash ROI | 3.95% |
| Cap Rate | 6.89% |
Financial Assumptions (Platform Defaults)
| Down Payment | 30% | Percentage of purchase price paid upfront |
| Interest Rate | 7% | Annual mortgage interest rate |
| Mortgage Term | 30 years | Length of the mortgage loan |
| Closing Costs | 3% | Title, escrow, lender fees as % of purchase price |
| Insurance Rate | 0.36% | Annual homeowner's insurance as % of purchase price (calibrated for Florida) |
| Vacancy Rate | 3% | Default for conservative occupancy planning. In practice, investors often model 5–10% depending on turnover and management. |
| Maintenance | 5% | Repairs and upkeep as % of gross rental income (default 5%; often modeled up to 10% for older assets). |
Metric Definitions & Color Legend
Cash-on-Cash ROI
Measures the annual return on your actual out-of-pocket investment. This is the primary deal quality indicator.
Formula: ROI = (Annual Net Cashflow ÷ Cash Needed to Close) × 100
- 🟢 Green: ≥ 8% — Great deal
- 🟡 Yellow: 6–8% — Good deal
- 🟠 Orange: 4–6% — Average
- ⚪ White: < 4% — Below target
Cap Rate (Capitalization Rate)
Measures property income independent of financing. NOI = Annual Rent minus operating expenses (taxes, insurance, HOA, maintenance, vacancy) — excluding mortgage payments.
Formula: Cap Rate = (Net Operating Income ÷ Purchase Price) × 100
- 🟢 Green: ≥ 8%
- 🟡 Yellow: 6–8%
- 🟠 Orange: 4–6%
- ⚪ White: < 4%
Rent-to-Price Ratio
Quick screening metric based on the '1% Rule' — properties where monthly rent equals 1% of purchase price tend to cash flow well.
Formula: Rent/Price = (Monthly Rent ÷ Purchase Price) × 100
- 🟢 Green: ≥ 1.0%
- 🟡 Yellow: 0.8–1.0%
- 🟠 Orange: 0.6–0.8%
- ⚪ White: < 0.6%
Gross Rent Multiplier (GRM)
How many years of gross rent it takes to pay off the purchase price. Lower is better.
Formula: GRM = Purchase Price ÷ Annual Gross Rent
Net Monthly Cashflow
The actual dollars remaining after all monthly expenses.
Formula: Cashflow = Monthly Rent − (Mortgage + Taxes + Insurance + HOA + Maintenance + Vacancy)
Cash Needed to Close
Down payment (30%) plus estimated closing costs (3%).
Formula: Cash to Close = Down Payment + Closing Costs
Price per Square Foot
Normalized value comparison across different property sizes and types.
Formula: $/SqFt = Purchase Price ÷ Living Area (SqFt)
Community & Restriction Classifications
Rent Restriction (Wait Period)
Many condo and co-op associations require new owners to wait 1–3 years before they can rent. During the wait period you must pay all carrying costs (mortgage, taxes, HOA, insurance) with $0 rental income.
- 🟢 ✓ Rent Immediately (0 years)
- 🟡 ⚠ Verify (condo/co-op, unknown)
- 🟠 🚫 1–2 Year Wait
- ⚪ 🚫 3+ Year Wait
Adjusted ROI (5-Year Average)
When a rent restriction exists, this metric calculates the true 5-year average ROI by factoring in the years of $0 income with full carrying costs.
Formula: Adjusted ROI = ((Rental Years × Annual Cashflow) − (Restriction Years × Annual Carrying Cost)) ÷ (5 × Cash to Close) × 100
55+ Age-Restricted Community
At least one occupant must be 55 or older. This significantly limits the tenant pool. Detected from description keywords: '55+', '55 and over', 'age restricted', 'active adult', 'senior community'.
Co-op (Cooperative Ownership)
Co-ops are NOT traditional real estate ownership — you buy shares in a corporation, not the unit itself. Board approval is required for both purchase and rentals. Co-ops often have stricter financial requirements, higher flip taxes, and may ban rentals entirely.
Data Quality & Sanitization Rules
- Commercial suites removed — Properties with 'Suite' or 'Ste' in the address are deleted (mislabeled office spaces).
- For-rent listings excluded — Focused exclusively on for-sale investment properties.
- ROI hard cap: 40% — Properties above 40% ROI have financial metrics nulled (always indicates erroneous data).
- Price floor: $10,000 — Properties below $10,000 have financial metrics removed (typically land parcels or data errors).
- Manufactured home rent cap: 1.5% — Mobile homes where rent exceeds 1.5% of list price have metrics nulled.
- Standard rent cap: 2% — All other properties where rent exceeds 2% of list price have metrics nulled.
- Vacant land: No financials — Properties typed as 'land' have all rental and ROI metrics set to zero.
- Country club properties: Warning badge — Communities with mandatory membership fees ($50K–$125K+) display a warning badge.
Data Confidence Scoring
Each property receives a confidence score (0–100) based on completeness of critical financial data:
- High Confidence — Tax, rent, price, and HOA/lot lease data all present.
- Verify Data — Some financial fields estimated or missing — metrics approximate.
- Incomplete Data — Critical fields missing — use caution with displayed metrics.
Warning Badges Explained
- ✓ Rent Immediately — No rental restriction. Ready for immediate tenant placement.
- 🚫 X-Year Rent Restriction — Owner must wait X years before renting. Carrying costs apply.
- ⚠️ Rent Restriction: Verify — Condo/co-op with unknown restriction — verify with listing agent.
- 👴 55+ Community — Age-restricted, at least one occupant must be 55+.
- 🏢 Co-op — Cooperative ownership, board approval required.
- ⚠ HOA Unknown — Condos/townhouses missing HOA fee data.
- ⚠ Lot Lease Unknown — Mobile/manufactured homes missing lot lease data.
- ~ HOA Est. — Fee derived from description parsing (not from MLS data).
- 🏌️ Club Membership Req. — Mandatory membership fees ($50K–$125K+) NOT factored into ROI.
Data Sources & Freshness
- Property data: Sourced from Zillow's public listings, updated daily via automated pipelines.
- Rent estimates: Based on Zillow's Rent Zestimate® algorithm.
- Tax data: From county assessor records. When missing, estimated at 0.86% of list price (Florida effective rate).
- Insurance: When actual data is available, we use it. Otherwise estimated at 0.36% of purchase price.
- HOA/Lot Lease: From MLS data or parsed from listing descriptions. Estimated values are flagged with amber badges.
Visit: https://aihiddenproperties.com/methodology