NOI (Net Operating Income) is total rental income minus all operating expenses. It does NOT include mortgage payments, depreciation, amortization, or income taxes. It's the most important metric for evaluating operational profitability of properties.

Operating expenses include: property taxes, property insurance, maintenance & repairs, property management (8-12% of income), HOA/condo fees, owner-paid utilities, advertising/marketing, accounting, legal fees, capital reserves (5-10% of income), and vacancy allowance.

Vacancy rates vary by market: A Markets (NYC, SF, LA): 3-7%. B Markets (Austin, Nashville): 5-10%. C Markets (smaller cities): 8-15%. Class A properties: 5-8%. Class B: 7-12%. Class C: 10-20%. Consider seasonality, tenant turnover, and local economic conditions.

After-tax cash flow = NOI - mortgage payments - capital reserves - income taxes + depreciation benefits. Residential depreciation is 27.5 years in US. Example: $275k property = $10k annual depreciation. In 24% tax bracket, you save $2,400 in taxes.

Cap Rate = NOI ÷ Purchase price (no financing). Measures operational yield. Cash-on-Cash Return = Annual cash flow ÷ Cash invested (with financing). Example: $100k property, $8k NOI, $20k cash, $3k flow. Cap Rate = 8%. Cash-on-Cash = 15%. Leverage improves Cash-on-Cash but increases risk.

Property is profitable when: 1) Positive cash flow after ALL expenses. 2) Cap Rate >6% in B/C markets, >3% in A markets. 3) Cash-on-Cash Return >8-12%. 4) 1% Rule: monthly rent ≥ 1% of purchase price. 5) Debt Service Coverage Ratio >1.25. Also consider appreciation, tax benefits, and portfolio diversification.

BRRRR = Buy, Rehab, Rent, Refinance, Repeat. Buy property at discount, renovate to increase value, rent it out, refinance based on new value (pull out initial investment), repeat process. Allows rapid portfolio scaling but requires experience, capital, and markets with spread between purchase price and ARV (After Repair Value).

Analyze markets by: 1) Population and job growth. 2) Economic diversification (avoid single-industry cities). 3) Price-to-rent ratios and cap rates. 4) Tenant regulations (CA/NY more restrictive). 5) State and local taxes. 6) Barriers to entry (costs, regulations). A Markets: low yield, high appreciation. C Markets: high yield, low appreciation.