Rental property cash flow equals gross rent, minus a vacancy allowance of 8-10%, minus every operating expense, minus your principal-and-interest payment. On a mid-market long-term rental, that math usually lands between $100 and $350 a month, not the $800 a beginner gets by subtracting a $1,200 mortgage from $2,000 of rent.
Most investors calculate cash flow wrong, and they don't find out until they own the property. The mistake isn't arithmetic. It's leaving out entire expense categories because nobody wants to watch the deal get worse on paper. I've seen it hundreds of times in 18 years of buying and operating: an investor shows me a rental that "cash flows $500 a month," and five minutes into the numbers we're at $80. Sometimes we're negative.
This guide walks through the rental property cash flow calculator I actually use with operators. Every line item, with real numbers, in the order they matter.
What Rental Property Cash Flow Actually Measures
Cash flow is what's left after every legitimate expense and your mortgage payment come out of the rent. Not profit in the accounting sense. Not appreciation. Not loan paydown. Cash, meaning the money that lands in your bank account each month and stays there.
The distinction matters because a property can "make money" across ten years through appreciation while bleeding you $300 a month the whole time. Cash flow is what keeps you solvent in the short run. It is the difference between a rental that funds your life and one that quietly drains it.
Two numbers do different jobs. Monthly cash flow tells you whether the property pays its own bills. Cash-on-cash return, which is annual cash flow divided by the cash you put in, tells you whether the property is a competitive use of your money compared with everything else you could buy. Track both or you will end up proud of a $400-a-month rental that tied up $90,000.
The Cash Flow Calculation Process, Step by Step
Every line below earns its place. Skip one and you inflate projected returns, then fail the first time a repair lands.
Start with Gross Rental Income (GRI). This is the full rent at 100% occupancy. For a long-term rental it is the lease rate. For a short-term or mid-term rental it is projected monthly revenue built from a defensible occupancy rate times a defensible nightly or monthly rate, pulled from market data rather than a platform's "potential earnings" widget.
Subtract a vacancy allowance of 8-10%. No property stays full every month of every year. This covers turnover, lease-up gaps, and slow seasons. Gross Effective Income = GRI × (1 − vacancy rate). Deleting this line to make a deal look better is how investors get surprised by an outcome that was always coming.
Subtract operating expenses. Property management at 8-12% of gross rents, property taxes from the county assessor's record rather than the listing sheet, landlord insurance from a real quote, a repair reserve at roughly 5% of gross rent, and a capital expenditure reserve at roughly 5%.
Subtract debt service. Principal and interest only. A $150,000 loan at 7.5% over 30 years is $1,049 a month. If your lender escrows taxes and insurance inside one PITI payment, do not count them twice.
Read the result, then convert it. Net Cash Flow = Gross Effective Income − Operating Expenses − Debt Service. Multiply by 12, divide by total cash invested including down payment, closing costs, and rehab, and you have cash-on-cash return.
Re-run the model at your offer price, not the asking price. Price is the input you control. Change it until the deal clears your threshold, then submit that number or walk.
The reserve lines are the ones most often deleted. CapEx covers items that don't hit every year but always hit eventually: a roof at $8,000-$15,000, an HVAC system at $5,000-$10,000, a water heater near $1,200, appliances on a ten-year cycle. The IRS requires you to treat those improvements as depreciable capital items rather than same-year repairs, which is a useful reminder that they are a separate category of money. Funding them at 5% of rent means the invoice does not become a credit card balance.
Here is the expense stack with the ranges I hold operators to on a stabilized long-term rental.
Expense line | Typical range | Where the number comes from |
|---|
Vacancy allowance | 8-10% of gross rent | Local vacancy data plus your own turnover history |
Property management | 8-12% of gross rent | A current fee schedule from a manager who works your zip code |
Property taxes | Varies widely | County assessor record for the parcel |
Landlord insurance | $75-$200/month | A written quote on the actual address |
Repair reserve | 5% of gross rent | Your last two years of maintenance invoices |
CapEx reserve | 5% of gross rent | Age of roof, HVAC, water heater, appliances |
Added together, those lines commonly consume 40-50% of gross rent before a dollar of mortgage is paid. That ratio is the fastest sanity check on any pro forma somebody hands you.
Running the Numbers: A $200,000 Single-Family Deal
Take an illustrative 3-bed, 2-bath single-family rental in a secondary market. Rent is $1,850. Purchase price is $200,000 with 25% down, so the loan is $150,000 at 7.5% on a 30-year fixed, which is $1,049 a month in principal and interest. Closing costs and light make-ready bring total cash in to roughly $57,000.
This table walks the same deal line by line so you can see where the $1,850 goes.
Line item | Monthly |
|---|
Gross rental income | $1,850 |
Vacancy at 9% | −$167 |
Gross effective income | $1,683 |
Property management at 10% | −$185 |
Property taxes | −$140 |
Landlord insurance | −$90 |
Repair reserve at 5% | −$93 |
CapEx reserve at 5% | −$93 |
Total operating expenses | −$601 |
Debt service (P+I) | −$1,049 |
Net monthly cash flow | $33 |
Thirty-three dollars a month. Annualized that is $396, and $396 divided by $57,000 of cash invested is a cash-on-cash return of 0.7%. One water heater erases the year. That is not a deal I would buy, and it is the deal most spreadsheets report as "$800 a month" because they stopped after rent minus mortgage.
Notice what did not go wrong here. The rent is reasonable. The management fee is normal. The insurance quote is fair. Nothing in the operating column is broken. The deal is thin because of what was paid for it.
The Same House at a Lower Price
Now buy the identical property for $165,000, a $35,000 discount from a seller who needs to move or a market that softened. Down payment at 25% is $41,250, the loan is $123,750, and principal and interest at 7.5% drop to $865 a month. Every other line stays where it was.
Net monthly cash flow = $1,683 − $601 − $865 = $217. Annualized that is $2,604. Against roughly $48,000 of total cash in, cash-on-cash return is about 5.4%. Push the purchase to $150,000 and P+I falls near $787, cash flow reaches $295 a month, and the return clears 7%.
The property didn't change. The rent didn't change. The acquisition price did. Cash flow is an acquisition problem before it is a rent problem. In a flat-rent market you cannot raise your way to a return, so you buy right or you don't buy.
Short-Term and Mid-Term Rentals Change the Expense Stack
I moved most of my own portfolio attention to short-term and mid-term rentals in 2016 because the revenue ceiling is higher. The expense stack is also heavier, and the model has to reflect that or the projection is fiction.
Platform fees come first. Airbnb's published service-fee structure typically takes roughly 3% from the host on the split-fee model, and hosts who choose the host-only model absorb a materially larger share instead of passing it to guests. Add cleaning labor between stays, consumables, higher utilities because you pay them, furnishing replacement on a three-to-five-year cycle, software, and either your own hours or 18-25% to a full-service STR manager.
A workable rule: model short-term rental operating expenses at 45-60% of gross revenue before debt service, then require the deal to still clear your threshold in your market's two weakest months. Mid-term rentals aimed at travel nurses and relocating professionals sit between the two models. Monthly rates run above long-term rent, turnover drops to a handful of moves a year, and the fee drag is smaller than nightly platforms.
If your numbers only work at peak-season occupancy, you do not have a deal. You have a seasonal bet with a mortgage attached.
Where Investors' Models Break
Five failure modes account for nearly every blown projection I review.
Using the listing's tax figure. Assessments reset after a sale in many counties, and the new bill can be hundreds of dollars a month higher than the seller's. Pull the parcel record and the local rate.
Quoting insurance from a homeowner policy. Landlord and short-term rental coverage price differently, and an unquoted line is a guess.
Counting escrowed taxes and insurance twice. They belong in operating expenses or inside PITI, never both.
Treating reserves as optional. A model without repair and CapEx lines is a model that assumes nothing ever wears out.
Modeling the best 12 months. Build the worst likely year first: one extra vacancy month, one $2,500 repair, one rate increase on insurance. If it still clears, you have something.
KNOW / DO / TRACK
KNOW: Cash flow equals gross effective income minus all operating expenses minus debt service. Rent minus mortgage is a starting point, not a result, because it ignores five to seven categories that are not optional.
DO: Build one spreadsheet with the exact rows in the table above and run it on every property before you make an offer. Set the price so the deal clears your cash-on-cash threshold, then submit that number.
TRACK: Actual monthly cash flow against your original projection, monthly, for the first year. If actuals run 20% or more under projection for three consecutive months, one input is miscalibrated. Check vacancy, management fees, and repair history in that order.
If you want a second set of eyes on a specific deal, book a complimentary one-on-one diagnostic call at cashflowdiary.com/diagnostic. It costs nothing. If the deal is worth pursuing and you want a written 90-day plan built around it, that action plan is $997.
Frequently Asked Questions
What is a good monthly cash flow for a rental property?
Most experienced operators treat $100-$300 per door per month as the floor on a long-term rental, and they check it against cash-on-cash return before deciding. For short-term rentals the working target is 10-15% cash-on-cash annually. Higher monthly dollars come with sharper occupancy management and a heavier expense load.
How do I compare two rental properties?
Compare on cash-on-cash return, not raw dollars. A $150-a-month cash flow on $20,000 invested is 9%, which beats $400 a month on $90,000 invested at 5.3%. Run both deals through the same expense assumptions, or the comparison is meaningless.
Should I use the 50% rule or calculate every expense?
The 50% rule, which budgets half of gross rent for operating expenses before debt service, is a fine screener when you are filtering 40 listings. Do not buy on it. Before an offer goes out, build the full line-item model with the county tax rate, a written insurance quote, and a manager's current fee schedule.
What's the difference between cash flow and cash-on-cash return?
Cash flow is the monthly dollar amount left after all expenses and debt service. Cash-on-cash return expresses annual cash flow as a percentage of the cash you invested. Cash flow tells you whether the property survives the month; cash-on-cash tells you whether your capital is well placed.
How does short-term rental cash flow differ from long-term?
Short-term rentals produce higher gross revenue and carry heavier costs: platform fees, cleaning, consumables, utilities, furnishing replacement, and active management. Model operating expenses at 45-60% of gross revenue rather than the 40-50% used for long-term rentals. Also confirm local licensing and lodging-tax rules before you underwrite, because those costs are jurisdiction-specific.
Does depreciation count as cash flow?
No. Depreciation is a non-cash deduction that lowers taxable income; it never appears in your bank balance. Keep tax treatment in a separate schedule from your monthly cash flow model so you do not credit yourself twice for the same property.
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