How to Calculate Cash Flow on a Rental Property
Cash flow is the number that tells you whether a rental pays you or costs you every month. It's simple to calculate — as long as you don't skip the expenses beginners forget. Here's the full process.
The basic formula
Cash flow = income − all expenses − mortgage payment. Simple. The mistakes all happen in the "all expenses" part.
Step 1 — Total income
Monthly rent plus any extra income (parking, laundry, storage). Then subtract a vacancy allowance of 5–8% — no property is rented 100% of the time.
Step 2 — Operating expenses (the ones people forget)
- Property taxes
- Insurance
- Maintenance (budget ~5% of rent)
- CapEx reserves for big-ticket items — roof, HVAC, water heater (another ~5%)
- Property management (~8–10% if you use a manager)
- HOA fees and any utilities you cover
The two most-skipped expenses are maintenance and CapEx reserves. Leave them out and a "cash-flowing" property quietly loses money the first time the roof leaks.
Step 3 — Subtract the mortgage
Take your income after vacancy, subtract all operating expenses (that's your NOI), then subtract the annual mortgage payment. What's left is your pre-tax cash flow.
A quick example
Rent $2,000/mo = $24,000/yr. Less 5% vacancy = $22,800. Less operating expenses of $8,000 = $14,800 NOI. Less a $10,800/yr mortgage = $4,000/yr cash flow, or about $333/month.
The takeaway
Honest cash flow means budgeting for vacancy, maintenance and CapEx — not just rent minus mortgage. Model every cost, and you'll never be surprised by a property that looked good on paper but bleeds cash in reality.
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