How to calculate rental property cash flow
Five steps, one worked example. Use the free calculator to try your own numbers.
The example
A rental that charges $1,800 a month, with 5% vacancy, $3,000 a year property tax, $1,200 a year insurance, repairs budgeted at 8% of income, no property manager and a $1,050 monthly mortgage payment. Purchase price $250,000; $55,000 cash invested.
Step by step
- Collected income. $1,800 less 5% vacancy ($90) = $1,710 a month.
- Operating expenses. Property tax $250 + insurance $100 + repairs 8% of $1,710 ($136.80) = $486.80 a month.
- Net operating income (NOI). $1,710 − $486.80 = $1,223.20 a month, or $14,678.40 a year.
- Cash flow. NOI less the $1,050 mortgage payment = $173.20 a month, or $2,078.40 a year.
- Returns. Cap rate = $14,678.40 ÷ $250,000 = 5.87%. Cash-on-cash = $2,078.40 ÷ $55,000 = 3.78%.
What people forget
- Vacancy and repairs are real even in a good year: budget them instead of assuming zero.
- Principal paid on the loan is not an expense but it is not cash in your pocket either: this calculator reports cash flow, not total return.
- Capital expenses (a new roof, a water heater) are lumpy; the maintenance percentage is a smoothing tool, not a promise.
Rental Property Income & Expense Tracker (Excel)
Keep a running ledger of the real numbers instead of estimates. One ledger for rent and bills; totals by property, month and category, ready for your own records or your tax preparer.
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General information, not tax, legal or investment advice.