How to Calculate Rental Property Cash Flow
Cash flow is the money left over from a rental property after all expenses are paid. Positive cash flow means the property generates income; negative cash flow means you're supplementing it out-of-pocket. Calculating this before buying is the most important due-diligence step in real estate investing.
The Cash Flow Formula
Monthly Cash Flow = Gross Rental Income
− Vacancy Allowance
− Operating Expenses
− Mortgage Payment (PITI)
Key Terms
- Gross Rental Income: Total rent collected at 100% occupancy
- Vacancy Allowance: Typically 5–10% of gross rent (assumes some vacancy)
- Operating Expenses: Property taxes, insurance, repairs, property management (typically 40–50% of gross rent in the "50% rule" shortcut)
- PITI: Principal, Interest, Taxes, Insurance (your mortgage payment including escrow)
Step-by-Step Example
Duplex with $2,400/month gross rent, $1,500/month mortgage (PITI), and estimated expenses.
| Item | Monthly |
|---|---|
| Gross rent | $2,400 |
| − Vacancy (8%) | −$192 |
| − Repairs/maintenance | −$150 |
| − Property management (10%) | −$240 |
| − Landlord insurance (included in PITI) | $0 |
| Net Operating Income | $1,818 |
| − Mortgage (PITI) | −$1,500 |
| Monthly Cash Flow | $318 |
Annual cash flow: $318 × 12 = $3,816
Key Metrics
- Cap Rate: NOI / Property Value (good benchmark for market comparison)
- Cash-on-Cash Return: Annual Cash Flow / Total Cash Invested
Use our rental property calculator to analyze any investment property.