Metrics & Formulas5 min read

How to Calculate Rental Property Cash Flow

Cash flow is the lifeblood of a rental investment. Learn how to calculate gross rent, subtract every expense category, and arrive at the monthly and annual cash flow number that actually matters.

Cash flow is the simplest and most immediate measure of a rental investment: how much money lands in your bank account each month after every bill is paid. Positive cash flow means the property pays you; negative cash flow means you're subsidizing it. Here's exactly how to calculate it, and where most investors go wrong.

The Cash Flow Formula

Gross Rent

− Vacancy allowance

= Effective Gross Income

− Operating Expenses (taxes, insurance, mgmt, maintenance, CapEx)

= NOI

− Mortgage P&I

= Cash Flow

Divide annual cash flow by 12 for the monthly figure. Divide by total cash invested for your cash-on-cash return.

The Most Common Cash Flow Mistakes

These four omissions turn a cash-flow-positive deal into a cash-flow-negative one:

Skipping CapEx. Roofs, HVAC, water heaters, and appliances all fail. Budget 1–1.5% of property value per year for capital expenditures.
Zero vacancy. Even excellent rentals have turnover. Use at least 5% vacancy, even if the current tenant has been there for years.
No management fee. Even if you self-manage, account for 8–10% of gross rent. If you ever hire a manager, or want to sell to an investor, the number needs to be in there.
Using the seller's numbers. Sellers routinely understate expenses. Verify property taxes, insurance, and actual maintenance history independently.

Positive vs. Negative Cash Flow: When Is Each OK?

Positive cash flow is the goal for most buy-and-hold investors. It means the property covers itself and produces income. Even a small positive ($100–$200/month) provides a buffer against unexpected expenses.

Negative cash flow can be acceptable if you are buying in a high-appreciation market and your long-term IRR supports the investment. But it means you are betting on appreciation, a riskier strategy. Always know exactly how negative the cash flow is and how long you can sustain it.

Key Takeaways

1Cash flow = NOI − Mortgage payments. It is the money left after every operating cost and debt service.
2Always include CapEx, vacancy, and management in your expense model, even if you self-manage.
3Negative cash flow can be a valid strategy in appreciation markets, but it requires an explicit long-term IRR case.
4Small positive cash flow ($100–$300/month) is a common target for stabilized single-family rentals.

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