Rental Property Cash Flow: How to Calculate If a Property Is Worth Buying
Ask ten real estate investors what they look for in a deal and nine of them will say the same thing: cash flow. It's the most basic measure of whether a rental property is performing - and one of the most commonly miscalculated metrics beginners encounter.
This guide shows you exactly how to calculate cash flow, what expenses beginners forget, what a target looks like, and how to quickly screen deals before spending hours on deep analysis.
What Is Cash Flow (In Real Estate)?
Cash flow is the money left over each month after all expenses have been paid, including the mortgage. It's not gross rent. It's not even what hits your bank account right away (some cash goes to reserves). It's the net income the property produces.
Simple formula: Monthly Cash Flow = Gross Rent - All Monthly Expenses (including mortgage)
Positive cash flow = the property pays you Negative cash flow = you're paying the property
The Full Cash Flow Calculation
Here's every expense that should be in your calculation:
Monthly Income:
- Gross rent (market rent × occupancy rate)
- Any additional income (laundry, parking, pet fees)
Monthly Expenses:
- Mortgage payment (P+I)
- Property taxes (annual ÷ 12)
- Insurance (annual ÷ 12)
- Property management (8 - 12% of collected rent - include even if self-managing)
- Repairs & maintenance (1% of property value annually ÷ 12)
- CapEx reserve (appliances, roof, HVAC replacement fund - typically 5 - 8% of gross rent)
- Vacancy allowance (5 - 10% of gross rent)
- Utilities (if any are owner-paid)
- HOA fees (if applicable)
- Lawn care / snow removal (if owner-handled)
Cash Flow = Total Income - Total Expenses
A Full Example
Property: 3-bed/2-bath SFR, purchase price $195,000
| Item | Monthly Amount | |---|---| | Gross Rent | $1,600 | | Vacancy (8%) | -$128 | | Effective Gross Income | $1,472 | | Mortgage (25% down, 7% rate) | -$975 | | Property Taxes | -$175 | | Insurance | -$100 | | Property Management (10%) | -$147 | | Repairs (1% of value) | -$163 | | CapEx Reserve (6%) | -$88 | | Total Expenses | -$1,648 | | Monthly Cash Flow | -$176 |
This property loses $176/month. It might still appreciate and build equity - but it's not cash-flow positive at these numbers.
What would make it work? Either a lower purchase price ($160,000 - $170,000), higher rent ($1,750+), or financing with a lower rate (subject-to deal at 3 - 4%).
What Is "Good" Cash Flow?
There's no universal answer - it depends on your goals, market, and strategy. But here are common benchmarks:
$100 - $200/month per door: The classic beginner target. Fine for appreciation plays or portfolio building, but leaves little margin.
$300 - $500/month per door: Solid cash flow. Gives you margin for unexpected expenses.
$500+/month per door: Excellent cash flow. Usually only in secondary/tertiary markets or value-add deals.
Cash-on-cash return target: Most investors want 6 - 12% annual cash-on-cash return. This ties your cash flow to the capital you invested.
The Expenses Beginners Always Forget
CapEx (capital expenditures): This kills more beginners than anything else. CapEx isn't monthly repairs - it's the big-ticket items that eventually wear out: roof ($8,000 - $20,000), HVAC ($4,000 - $8,000), water heater ($800 - $1,500), appliances ($400 - $1,200 each), plumbing, electrical. Budget 5 - 8% of gross rent monthly into a CapEx reserve account. When the roof needs replacement, you have the money.
Property management: Even if you're managing yourself today, underwrite a management fee (10%) into every deal. If you ever want your time back, the deal needs to work with management.
Vacancy: Even good properties have turnover. A tenant leaving costs you: lost rent, cleaning, minor repairs, listing costs. Budget 8% vacancy on long-term rentals, 15 - 25% on short-term rentals.
Increased taxes after purchase: In many states, assessed value resets to sale price. Your taxes after buying could be significantly higher than the current owner's taxes. Always check.
Cash Flow vs. Total Return
Cash flow is not the only measure of a deal's success. Total return includes:
- Cash flow (monthly income)
- Equity paydown (mortgage balance decreases each month)
- Appreciation (property value increases over time)
- Tax benefits (depreciation, expense deductions)
A property with modest cash flow in a high-appreciation market might outperform a high-cash-flow property in a stagnant market over 10 years.
That said: cash flow protects you. Appreciation is speculative. Build your strategy around cash flow and let appreciation be the bonus.
The $200/Month Rule: Quick Deal Screening
As a quick filter before running full numbers: does this property have a shot at generating $200/month in cash flow?
Quick screening math:
- Monthly rent × 50% = estimated non-mortgage expenses
- Remaining 50% must exceed the mortgage payment by your cash flow target
Example: $1,400 rent × 50% = $700 expenses. You need a mortgage under $500 to hit $200 cash flow. At 7%, that's a loan around $75,000. If you're buying at $100,000 with 25% down, your loan is $75,000. Deal might work - run full numbers.
Tools to Calculate Cash Flow
- Spreadsheet: Download a free rental property analysis template and run numbers manually
- Stessa: Free software built for landlords - tracks actual income, expenses, and cash flow automatically once you own the property
- BiggerPockets Rental Property Calculator: Popular online tool for deal analysis pre-purchase
- Our free cash flow calculator: [link to your site's calculator]
Final Thoughts
Cash flow is the oxygen of rental property investing. Positive cash flow means you can weather vacancies, repairs, and market downturns without stress. Negative cash flow means you're subsidizing a speculation - which may work out, but isn't an investment, it's a bet.
Run these numbers on every deal. Every. Single. One. The discipline of full analysis is what separates investors who build wealth from those who end up frustrated, over-leveraged, and forced to sell at the wrong time.
Frequently Asked Questions
- What is a good cash flow for a rental property?
- A common target is $100 to $200 per door per month after all expenses including the mortgage. On a single-family rental, that's $1,200 to $2,400 per year in net cash flow. What counts as 'good' depends on your market, purchase price, and goals. Some investors in appreciation-heavy markets accept breakeven or slight negative cash flow in exchange for price growth.
- How do you calculate cash flow on a rental property?
- Cash flow equals gross rental income minus all operating expenses minus your mortgage payment. Operating expenses include property taxes, insurance, management fees, repairs, CapEx reserves, and vacancy allowance. After subtracting those from rent, subtract your monthly mortgage payment. Whatever remains is your monthly cash flow.
- What is the 1% rule for rental properties?
- The 1% rule is a quick screening tool that says a rental property should rent for at least 1% of its purchase price per month. A $150,000 property should rent for at least $1,500 per month. It's a rough filter, not a substitute for detailed analysis. Properties that meet the 1% rule in today's market are rare in most cities.
- Does cash flow include mortgage payments?
- Yes. When investors talk about cash flow, they mean net cash flow after the mortgage payment. If a property generates $1,800 per month in rent and costs $1,600 per month in expenses plus mortgage combined, the cash flow is $200 per month. Cash flow before the mortgage payment is closer to what cap rate measures.
- What is cash-on-cash return?
- Cash-on-cash return measures your annual cash flow as a percentage of the cash you actually invested in the deal. If you put $50,000 down and earn $4,000 per year in net cash flow after the mortgage, your cash-on-cash return is 8%. It's the most useful return metric for financed investments because it accounts for your actual out-of-pocket investment and loan payment.
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