Tool
Return on a rental property
Calculate the real return on a property you rent out or plan to buy as a rental: net cash flow after expenses and the cap rate.
Cap rate (net return)
—
Annual net cash flow divided by the property value
Gross annual rent—
Vacancy loss—
Annual expenses—
Net operating income (NOI)—
Gross return—
Assumptions & method
- Cap rate = annual net operating income (rent − vacancy − expenses) ÷ property value. It does not consider financing or appreciation.
- Rent is taxable income: ISR on leasing income (with an optional 35% deduction — the "blind deduction" — art. 115 LISR, Mexican Income Tax Law) and IVA only on commercial premises; neither is subtracted here.
- Expenses include: property tax, maintenance, insurance, administration and dues; these erode the return the most.
- Compare the cap rate against liquid alternatives (e.g. CETES, Mexican Treasury bills), remembering that a property adds potential appreciation but also illiquidity and vacancy risk.
FAQ
The essentials, in brief
What is a good cap rate in Mexico?
It depends on the market and property type: residential tends to sit at low, stable levels; commercial and industrial pay more in exchange for greater vacancy risk. Rather than chasing a magic number, compare it against the risk-free rate and demand a premium for illiquidity.
Why separate gross and net return?
Because vacancy and expenses eat up a meaningful share of the rent. The gross figure (annual rent ÷ value) looks good in listings; decisions are made on the net figure.
What about the landlord's taxes?
Rental income pays ISR (individuals: the leasing chapter, with the optional 35% blind deduction if it suits you) and, on commercial premises, IVA. The cap rate here is before taxes; subtract them according to your tax regime.
Next step
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