How to Calculate Rental Property Cash Flow (Example)
Cash flow is what is left from a rental's income after you pay its operating costs and the loan. It answers the most practical question about a property: in a typical month, does it put money in your pocket or take money out? Here is how to work it out step by step.
The formula
Net operating income (NOI) = effective rent − operating expenses
Monthly cash flow = NOI − monthly mortgage payment (principal and interest)
Operating expenses are the costs of running the property: property tax, insurance, HOA dues, utilities you pay as the owner, maintenance, a reserve for big replacements (CapEx) and property management. The mortgage is not an operating expense; it is subtracted separately, which is why NOI and cash flow are different numbers.
Step by step
- Start with rent. Use the rent the unit can realistically get, plus any other regular income such as parking or laundry.
- Subtract a vacancy allowance. Units sit empty between tenants and some rent goes uncollected. Pick a percentage that fits your property and market.
- Subtract operating expenses. Convert yearly bills (tax, insurance) to monthly. Budget maintenance and CapEx as a percentage of rent so they are not forgotten.
- Subtract the mortgage payment (principal and interest). If you have no loan, cash flow equals NOI.
Worked example
Example only: made-up round numbers, not a real property, loan or market. Purchase price $180,000; 20% down; 6.5% interest, 30-year loan; monthly rent $1,600 (no other income); 5% vacancy; property tax $2,160/yr; insurance $1,080/yr; no HOA or owner-paid utilities; maintenance 8% and CapEx reserve 5% of rent; self-managed (0%).
- Rent: $1,600
- Vacancy: $1,600 × 0.05 = $80, so effective rent = $1,520
- Operating expenses: tax $180 + insurance $90 + maintenance $128 + CapEx $80 = $478
- NOI: $1,520 − $478 = $1,042 per month ($12,504 per year)
- Loan: $180,000 × (1 − 0.20) = $144,000. Monthly P&I at 6.5% for 30 years ≈ $910.18
- Monthly cash flow: $1,042 − $910.18 ≈ $131.82 (about $1,581.86 per year)
Small changes move this number a lot. A higher vacancy allowance, a repair budget that turns out too low, or a higher interest rate can each turn a small positive figure negative, so test a few versions of your assumptions rather than relying on one.
What cash flow leaves out
- It is before income taxes, and it ignores principal paydown and appreciation.
- It does not show how much cash you put in; cash-on-cash return relates cash flow to your down payment and costs.
- It does not show how comfortably income covers the loan; see DSCR for rental property.
- It is only as good as your expense estimates. Tracking real costs helps: see rental property expense categories.
How the Rental Deal Analyzer calculates it
The Rental Deal Analyzer uses the same steps on a yearly basis, one column per property: effective gross income = (monthly rent + other monthly income) × 12 × (1 − vacancy %); operating expenses = property tax + insurance + (HOA + owner utilities) × 12 + monthly rent × 12 × (maintenance % + CapEx % + management %); NOI = effective gross income − operating expenses; annual debt service = monthly P&I × 12; Cash flow / year = NOI − annual debt service; and Cash flow / month = cash flow per year ÷ 12. Its Chart tab shows monthly cash flow by property.
Not investment advice. These are estimates that depend entirely on the numbers you enter. Check figures with your lender and a qualified professional before you buy. Not legal or tax advice; rules vary by state and city.
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