Rental Property Cash Flow: How to Know If a Rental Makes Money
A rental can look profitable in a listing and still lose money after taxes, insurance, repairs, vacancy, and the mortgage. Rent is only the starting number. What matters is whether the property can carry itself under realistic assumptions.
Rental property cash flow is the money left each month after rental income pays for operating expenses and debt service. Positive cash flow may mean the property supports itself. Negative cash flow means you need a clear reason — and enough reserves — to accept the shortfall.
Test rental cash flow before you make an offer
Enter rent, vacancy, expenses, mortgage terms, and reserves to see whether the property can carry itself each month.
Open Rental Property CalculatorBefore making an offer, test the property with the Rental Property Calculator: Rental Property Calculator.
What is rental property cash flow?
Rental property cash flow is income minus the monthly costs required to own and finance the property.
Do not confuse these numbers:
- Gross rent: rent collected before expenses.
- NOI: income minus operating expenses, before financing.
- Cash flow after financing: income minus operating expenses and mortgage payments.
For a landlord with a loan, cash flow after financing is usually the practical number. It tells you whether money is likely to leave your bank account each month or come back into it.
Rental property cash flow formula
Use this first-pass formula:
Monthly rent + other income - vacancy reserve - operating expenses - mortgage payment = monthly cash flow
Other income can include pet rent, parking, storage, or laundry. Operating expenses include taxes, insurance, repairs, utilities paid by the owner, HOA fees, and property management. Mortgage payments sit below NOI because two buyers can purchase the same property and get different cash flow based on down payment, rate, and loan terms.
Expenses to include before you buy
A rental analysis should include more than rent, taxes, insurance, and the mortgage. At minimum, include:
- Property taxes: check whether reassessment could increase the bill after purchase.
- Insurance: landlord or homeowners insurance varies by state and property risk. See Home Insurance Guide for background.
- Repairs and maintenance: many investors start around 5% to 10% of rent, then adjust for age and condition.
- Vacancy: even good rentals can sit empty between tenants.
- Property management: include it even if you plan to self-manage; your time has value.
- HOA dues and owner-paid utilities: common in condos, townhomes, and multi-unit properties.
- Capital expenditure reserve: roof, HVAC, appliances, flooring, and other large repairs.
- Mortgage principal and interest: estimate this with Mortgage Payment Calculator or review mortgage payment guide.
Taxes, depreciation, and future sale taxes can affect total return, but they do not replace cash-flow math. Use capital gains tax guide as a planning overview, not personalized tax advice.
Worked example: $300,000 rental property
Assume a U.S. investor is evaluating this property:
| Input | Amount |
|---|---|
| Purchase price | $300,000 |
| Down payment | 25% = $75,000 |
| Loan amount | $225,000 |
| Loan terms | 6.75% for 30 years |
| Monthly rent | $2,400 |
| Property taxes | $325/mo |
| Insurance | $150/mo |
| Repairs/maintenance reserve | $240/mo, or 10% of rent |
| Vacancy reserve | $120/mo, or 5% of rent |
| Property management | $240/mo, or 10% of rent |
| Mortgage payment | about $1,459/mo |
The realistic version:
$2,400 - $325 - $150 - $240 - $120 - $240 - $1,459 = -$134/mo
The optimistic version, ignoring vacancy, maintenance, and management, looks much better:
$2,400 - $325 - $150 - $1,459 = $466/mo
That $600 monthly swing is the difference between a property that appears comfortable and one that may need cash from your paycheck. Higher rent, a larger down payment, lower rate, or self-management can improve the result. Higher taxes, insurance, repairs, or vacancy can erase it.
Compare cash flow, cap rate, and ROI
After the worked example, model total return with purchase price, income, expenses, financing, appreciation, and sale assumptions.
Open Real Estate ROI CalculatorAfter the cash-flow pass, compare cash flow, cap rate, and ROI with Real Estate ROI Calculator. For the basics, see how to calculate ROI.
Cash flow vs cap rate vs cash-on-cash return
Use each metric for the question it actually answers.
| Metric | Formula | Best For | Limitation |
|---|---|---|---|
| Monthly cash flow | Income - expenses - debt service | Affordability/liquidity | Can ignore long-term appreciation |
| NOI | Income - operating expenses | Property operations | Excludes financing |
| Cap rate | NOI / property value | Comparing properties without financing | Ignores loan terms |
| Cash-on-cash return | Annual pre-tax cash flow / cash invested | Leveraged investor return | Sensitive to loan/down payment assumptions |
Cap rate helps compare properties without loan assumptions. Cash-on-cash return focuses on the return on your actual cash invested. Monthly cash flow matters because repairs, lenders, and vacancies are paid in dollars, not percentages.
What is a good cash flow for a rental property?
There is no universal “good” number. A $100 monthly surplus may be too thin for an older house with an aging roof. A lower-cash-flow property in a strong market may still fit an investor with reserves and a long holding period.
The better question is: Does the expected return compensate you for the risk, effort, leverage, and lack of liquidity? Be skeptical of deals that only work with perfect occupancy, rising rents, no repairs, and a future refinance.
Common mistakes that make rentals look profitable on paper
Bad deals often survive because the assumptions are too clean. Common mistakes include ignoring vacancy, using last year’s insurance premium, underestimating repairs, assuming taxes will not change, excluding closing costs, treating principal paydown as spendable cash, and leaving out management because “I’ll do it myself.”
Financing can also change the answer fast. A property that works at 5.5% may fail at 6.75%.
How to run the numbers before making an offer
Use this workflow:
- Start with defensible market rent, not hoped-for rent.
- Estimate taxes, insurance, HOA dues, utilities, repairs, vacancy, and management.
- Calculate the payment with Mortgage Payment Calculator.
- Run the full deal through Rental Property Calculator.
- Compare broader returns with Real Estate ROI Calculator.
- Check your borrowing profile with Debt-to-Income Ratio Calculator.
- Use the Mortgage & Real Estate hub for related tools: Mortgage & Real Estate calculators.
These calculators are planning tools. Actual lender terms, property taxes, insurance, rents, repairs, vacancy, and local rules vary by property and market.
FAQ
How do you calculate rental property cash flow?
Add monthly rent and other income, then subtract vacancy, operating expenses, and the mortgage payment.
What expenses should I include for a rental property?
Include property taxes, insurance, repairs, maintenance, vacancy, property management, HOA fees, owner-paid utilities, capital expenditure reserves, and mortgage principal and interest.
Is negative cash flow ever acceptable on a rental property?
Sometimes, but it should be intentional. Negative cash flow means you must fund the property from other income. Do not accept it without reserves and a specific reason beyond hope.
What is the difference between cash flow and ROI?
Cash flow measures monthly surplus or shortfall. ROI measures return relative to money invested, often including appreciation, principal paydown, or sale assumptions.
How much should I reserve for repairs and vacancy?
Many investors start with 5% to 10% of rent for repairs and at least 5% for vacancy, then adjust for property age, condition, and local demand.
Should I include mortgage principal in rental property cash flow?
Yes. Principal paydown may build equity, but it is still part of the monthly payment leaving your account.
Bottom line
Rental property cash flow is simple, but easy to flatter. Count the boring costs. Stress-test the assumptions. If the deal only works when everything goes right, it probably does not work.
Run the full rental deal before financing
Check payment, debt load, cash flow, and reserves together before you commit to a mortgage or rental purchase.
Calculate Rental Cash FlowBefore financing, check the payment with Mortgage Payment Calculator, review your debt load with Debt-to-Income Ratio Calculator, and test the full property with Rental Property Calculator.