How to Calculate Rental Property Cash Flow (And Know If a Deal Is Worth It)
A step-by-step guide to calculating rental property cash flow — including the full formula, what most landlords forget, and a worked $200K property example.
How to Calculate Rental Property Cash Flow (And Know If a Deal Is Worth It)
The rental looks great on paper. The rent is $1,500 a month, the mortgage is $950, and you're pocketing $550 — easy money.
Then reality hits.
Month two, the tenant calls about a broken water heater: $900. In month five, the AC goes out: $2,200. You had a vacancy between tenants that cost you two months of rent. You're spending four to six hours a month on maintenance calls, lease renewals, and rent collection — time you never counted. By the end of the first year, your "profitable" rental property bled about $3,000 in cash.
This story plays out constantly for landlords who eyeball deals instead of running the real numbers. Gross rent minus mortgage payment is not cash flow — not even close. True cash flow requires accounting for vacancy, repairs, capital expenditures, insurance, taxes, and potentially property management. Get those wrong and you don't just underperform, you lose money on a "good deal."
This post walks you through exactly how to calculate rental property cash flow the right way — including the full formula, a worked example on a $200K property, and the most common mistakes landlords make before they know better.
What Cash Flow Actually Is
Cash flow is the money left over after every expense has been paid. Specifically:
Cash Flow = Net Operating Income (NOI) − Debt Service
NOI = Gross Rental Income − Operating Expenses
Operating expenses include everything it costs to run the property: property taxes, insurance, vacancy allowance, repairs and maintenance, capital expenditure reserves, and property management (even if you self-manage — more on that in a moment).
Debt service is your mortgage payment — principal and interest (P&I). It does not go into NOI. NOI is a pre-financing metric used to evaluate the property itself. Once you subtract the mortgage, you get to actual cash flow.
The Full Cash Flow Formula
Here's every line item you need to include:
Gross Rent (monthly) − Vacancy Allowance (typically 5–10% of gross rent) = Effective Gross Income
Effective Gross Income − Property Taxes (monthly) − Insurance (monthly) − Repairs & Maintenance (reserve) − Capital Expenditure Reserve (capex) − Property Management Fee = Net Operating Income (NOI)
NOI − Mortgage P&I = Monthly Cash Flow
Let's break down what each of those expense lines actually represents.
What to Include in Your Expenses
Mortgage (P&I)
Your full principal and interest payment. Don't use just the interest portion — you're paying down principal too, and that cash leaves your account every month.
Property Taxes
These vary wildly by market. A $200K property in Texas might cost $400–500/month in taxes; the same property in Ohio might be $150. Always use the actual property tax bill, divided by 12.
Insurance
Landlord insurance (also called a dwelling policy) typically runs $100–200/month for a single-family rental, depending on location and coverage level.
Vacancy Rate
Every property has vacancy — between tenants, during evictions, during rehab. A conservative estimate is 8% of gross annual rent (about one month per year). Many landlords skip this line entirely, then panic when a tenant gives notice.
Repairs & Maintenance
Rule of thumb: budget 1% of property value per year for maintenance (broken fixtures, plumbing, appliances, landscaping). On a $200K property, that's $2,000/year — about $167/month.
Capital Expenditure (CapEx) Reserve
CapEx covers big-ticket replacements: roof ($8,000–15,000), HVAC ($5,000–10,000), water heater ($1,000–1,500), flooring, windows. These don't happen every year, but when they do, they're expensive. A common reserve is another 1% of property value annually. Skipping this is the #1 reason landlords feel blindsided by their rental.
Property Management
If you hire a property manager, expect 8–12% of monthly rent. If you self-manage — here's the part most landlords miss — you should still factor in the value of your time. You're not working for free. Running a rental yourself is a part-time job: tenant screening, lease renewals, maintenance coordination, rent collection. Even at a modest $25/hour, four hours a month is $100 in real economic cost. At minimum, model the deal both ways so you understand your true margin if you ever want to step back.
Cap Rate vs. Cash-on-Cash Return
Two metrics come up constantly in rental property analysis. Here's how they differ:
Cap Rate measures the property's income potential independent of financing:
Cap Rate = NOI ÷ Property Value
It's useful for comparing properties in the same market or evaluating whether a purchase price is reasonable. A 6–8% cap rate is generally considered reasonable in most markets.
Cash-on-Cash Return measures the return on your actual invested cash:
CoC Return = Annual Cash Flow ÷ Total Cash Invested
Total cash invested includes your down payment, closing costs, and any upfront repairs. This is the metric that tells you whether your money is working hard enough. Many investors target a minimum 8–10% cash-on-cash return.
Cap rate ignores financing (useful for deal evaluation). Cash-on-cash includes it (useful for measuring your actual return). You need both.
Worked Example: $200K Property
Let's run the numbers on a real scenario.
The property:
- Purchase price: $200,000
- Down payment: 20% ($40,000)
- Loan amount: $160,000 at 7% over 30 years → $1,065/month P&I
- Gross monthly rent: $1,600
Monthly Income:
| Line Item | Amount |
|---|---|
| Gross Rent | $1,600 |
| Vacancy (8%) | −$128 |
| Effective Gross Income | $1,472 |
Monthly Operating Expenses:
| Line Item | Amount |
|---|---|
| Property Taxes | −$200 |
| Insurance | −$120 |
| Repairs & Maintenance (1%) | −$167 |
| CapEx Reserve (1%) | −$167 |
| Property Management (10%) | −$160 |
| Total Operating Expenses | −$814 |
NOI: $1,472 − $814 = $658/month
Cash Flow: $658 − $1,065 = −$407/month
This property loses money every month at these numbers. The gross rent-minus-mortgage "math" ($1,600 − $1,065 = $535 profit) looked great. The real math is negative cash flow.
Cap Rate: ($658 × 12) ÷ $200,000 = 3.9% — below most investors' thresholds.
Cash-on-Cash Return: (−$407 × 12) ÷ ($40,000 + ~$4,000 closing) = negative — this deal doesn't pencil at current rates and this rent level.
Now you can see what needs to change: rent needs to be higher, price needs to be lower, or you need to self-manage and reduce the vacancy assumption. Running the numbers is how you know which lever matters.
Common Mistakes Landlords Make
Ignoring vacancy rate. "My tenant never leaves" is not an underwriting assumption. Every property will have vacancy. Model it in.
Forgetting CapEx. Maintenance is what breaks month to month. CapEx is the big-ticket stuff that eventually breaks every property. A ten-year-old roof on a property you just bought will need replacing on your watch.
Not factoring in management if you self-manage. Self-management is a real job. If you ever want to sell the property, hire help, or evaluate it fairly against another investment, you need to model it with management costs. A deal that only works if you personally handle everything is a job, not an investment.
Using gross rent as income. After vacancy, you're not collecting 100% of annual rent. Use effective gross income.
Ignoring the financing structure. Cap rate looks great on a 4% rate deal. At 7%, the same property's cash flow is entirely different. Always run cash-on-cash return at your actual financing terms.
Why a Spreadsheet Beats a Napkin Estimate
Walking through this formula manually makes the logic clear. But doing it manually every time — or trying to hold it in your head while comparing three properties at once — is where mistakes happen.
A single bad assumption on vacancy or CapEx can flip a deal from profitable to bleeding cash. And if you're evaluating multiple properties to find the right one, you need to see all the numbers side by side.
This is why a purpose-built spreadsheet changes the game.
The Rental Property Cash Flow Calculator at Gridsmith covers every line item in this post — vacancy rate, CapEx reserve, property management, taxes, insurance, mortgage P&I — and does two things most landlord tools don't:
5-Year Projection tab: Rent grows. Expenses grow. Debt service stays fixed. The 5-Year tab shows you how your cash flow and equity change year over year — so you're not just evaluating day one, you're evaluating the full hold period.
Quick Comparison tab (3 properties side-by-side): When you're choosing between a triplex in one neighborhood and a single-family in another, running them in separate tabs and trying to compare mentally is error-prone. The Quick Comparison tab puts all three properties on one screen — same assumptions, same formula, same format — so the better deal is obvious.
At $20, it's a one-time download, works in Excel and Google Sheets, and pays for itself the first time it saves you from a deal that looks good on a napkin but bleeds cash in real life.
Get the Rental Property Cash Flow Calculator →
The Bottom Line
Rental property cash flow isn't gross rent minus mortgage. It's effective gross income (after vacancy) minus operating expenses (taxes, insurance, repairs, CapEx, management) minus debt service. Miss any of those lines and your "profitable" property could quietly cost you hundreds of dollars a month.
Run the real numbers before you buy. Run them when you're evaluating whether to keep a property or sell. And if you're looking at more than one deal at a time, use a tool that makes the comparison easy.
The math isn't complicated — but it has to be complete.
Mentioned in this post
Rental Property Cash Flow Calculator
Stop guessing and let a spreadsheet do the math for you. One afternoon of setup pays for itself on your next repricing.