What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a typical mortgage payment. PITI is the total monthly housing cost most lenders use for DTI calculations, and the number rental cash-flow analyses subtract from gross rent.
The four components: Principal (the loan balance paydown each month), Interest (the loan's rate applied to the remaining balance), Taxes (property taxes, typically escrowed into the mortgage payment), and Insurance (homeowners insurance, also typically escrowed).
PITI doesn't include HOA, PMI (private mortgage insurance for sub-20% down loans), maintenance, capex reserves, vacancy allowance, or property management. Rental cash-flow analyses must subtract all of these from gross rent, not just PITI.
A common rental underwriting shortcut: target gross monthly rent ≥ 1.4× PITI. If rent is $1,800 and PITI is $1,200, the property has a fighting chance to cash flow after all other expenses. If rent is $1,800 and PITI is $1,500, it almost certainly won't.
Concepts that connect.
Net Operating Income (NOI) is a rental property's annual gross rental income minus all operating expenses, before debt service and income taxes. NOI is the denominator of cap rate and the numerator of DSCR — it's the most-used number in rental underwriting.
Debt Service Coverage Ratio (DSCR) is the ratio of a property's annual net operating income to its annual debt service. A DSCR of 1.20 means the property generates 20% more income than it needs to cover the loan payment. Most DSCR lenders require 1.10-1.25 to underwrite.
Cash-on-cash return is annual pre-tax cash flow divided by the total cash the investor put into the deal (down payment + closing + rehab + reserves). Unlike cap rate, it accounts for financing. The most useful metric for comparing leveraged investments.
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