Net Rental Yield (Cap Rate): This is your property's unlevered annual rate of return from its operations (income minus operating expenses), as a percentage of its current value or price.
Spread: The difference between your Net Rental Yield and your Mortgage Interest Rate.
A positive spread suggests that the property's income-generating potential (before considering loan principal paydown or tax benefits) is higher than the cost of borrowing money to finance it. This can be an indicator of a potentially good leveraged investment.
A negative spread indicates that the cost of your mortgage interest is higher than the property's unlevered operating yield. This might mean negative cash flow if financing a large portion, unless offset by significant principal paydown, tax benefits, or strong appreciation prospects (which are not directly part of this yield vs. rate comparison).
This is a simplified analysis focusing on income yield versus debt cost. A full investment analysis should also consider loan amortization (principal paydown), potential property appreciation, tax implications, cash flow after all debt service, and your overall investment strategy. This tool is for informational purposes and not financial advice.
