How to calculate cash flow on a rental property

Here’s a step-by-step guide to help you calculate cash flow on a rental property accurately.

? What Is Cash Flow?

Cash flow = Rental Income − Operating Expenses − Mortgage Payments

Put simply, it’s the money that’s left over each month after paying for everything it takes to run the property.

? Step-by-Step Cash Flow Calculation

✅ Step 1: Estimate Your Monthly Rental Income

Start with your gross monthly rent from tenants.

Example:
$1,800/month from a single-family rental

If you have other income (laundry, parking, storage), add it here.

? Step 2: Subtract Operating Expenses

These are the regular costs of running the property (excluding your mortgage):

Property taxes
Insurance
Property management fees
Repairs maintenance (budget ~5–10% of rent)
HOA fees (if applicable)
Utilities (if paid by landlord)
Vacancy allowance (usually 5–10% of rent)

Example Monthly Operating Costs:

Taxes: $200
Insurance: $100
Property management: $180 (10%)
Maintenance reserve: $90 (5%)
Vacancy reserve: $90 (5%)
Total = $660/month

? Step 3: Subtract Mortgage Payments

This includes principal + interest, but not taxes or insurance (already counted above if escrowed).

Example:
Monthly mortgage payment = $800

? Step 4: Do the Math

Now plug it all into the formula:

Cash Flow = Rental Income – Operating Expenses – Mortgage Payment

$1,800 – $660 – $800 = $340/month in positive cash flow

That means you're making $340 per month, or $4,080 per year, in actual spendable profit.

? Bonus: Analyze with Cash-on-Cash Return

Cash flow is only part of the story. Investors also look at cash-on-cash return to measure performance relative to how much you invested.

Formula:
Cash-on-Cash Return = (Annual Cash Flow ÷ Total Cash Invested) × 100

Example:
You invested $25,000 (down payment + closing costs + repairs)

$4,080 ÷ $25,000 × 100 = 16.3% cash-on-cash return

? Tips for Accurate Cash Flow Estimates

Don’t underestimate vacancy or repairs
Always use realistic rents, not just asking prices
Include hidden costs like licensing, legal fees, pest control, or seasonal maintenance
Use conservative estimates to avoid surprises

✅ Final Thought

Knowing how to calculate rental property cash flow gives you a clear picture of your investment’s performance. It's the foundation for smart decisions—whether you’re buying your first rental or scaling your portfolio.