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How to calculate rental property cash flow, step by step

By Spruce Sheets · Updated November 14, 2026 · 7 min read

Cash flow is the number most landlords care about first: after the tenant pays rent and you pay every bill, including the mortgage, how much is left each month? It sounds simple, but most bad estimates come from leaving out costs that don't show up every month. This guide walks through the calculation line by line with a worked example, then shows how to test whether the result holds up.

The cash flow formula

Rental cash flow is built in three layers:

Effective rent − operating expenses = net operating income (NOI)
NOI − loan payment = cash flow

• Effective rent (often called effective gross income) is the rent you expect to collect after an allowance for vacancy and unpaid rent. Add other income such as pet rent, parking or laundry if you actually charge it.
• Operating expenses are the costs of running the property: property tax, insurance, repairs, capital expense reserves, property management, utilities you pay, HOA dues, lawn care, and so on. The loan payment is not an operating expense.
• Net operating income (NOI) is what the property earns before financing. It's the figure used for the cap rate and for the debt service coverage ratio (DSCR) lenders look at.
• Cash flow is NOI minus your mortgage payment (principal and interest). If your lender collects taxes and insurance through escrow, make sure you don't count them twice.

A worked example

Here is a made-up single-family rental. The numbers are for illustration only, not a forecast for any market.

Assumption	Value
Purchase price	$240,000
Down payment (25%)	$60,000
Loan	$180,000, 30-year fixed at 7.0%
Closing costs	$6,000
Repairs before the first tenant	$4,000
Market rent	$2,100 per month
Property tax	$3,000 per year
Insurance	$1,500 per year

Step 1: The loan payment

The monthly principal-and-interest payment on $180,000 over 30 years at 7.0% is $1,197.54. (Standard formula: loan × r ÷ (1 − (1 + r)⁻ⁿ), with r = 0.07 ÷ 12 and n = 360.)

Step 2: Effective rent

A 5% vacancy allowance on $2,100 is $105.00, so effective rent is $1,995.00 a month. Five percent equals roughly 18 days without rent per year. If units in your area take longer to fill, use a higher figure.

Step 3: Operating expenses

Monthly operating expense	Amount
Property tax ($3,000 ÷ 12)	$250.00
Insurance ($1,500 ÷ 12)	$125.00
Repairs and maintenance (5% of rent)	$105.00
Capital expense reserve (5% of rent)	$105.00
Property management (8% of collected rent)	$159.60
Total operating expenses	$744.60

Two of these lines deserve a word:

• Capital expenses (capex) are the big, infrequent items: a roof, a water heater, an HVAC system, flooring. They don't hit every month, so you set money aside every month. Percent-of-rent is a rough shortcut; a better method is to list the major components, estimate their remaining life and replacement cost, and divide.
• Management is worth including even if you manage the property yourself. Your time has a value, and the number tells you whether the deal still works if you hire a manager later.

Step 4: NOI and cash flow

NOI = $1,995.00 − $744.60 = $1,250.40 a month, or $15,004.80 a year.

Cash flow = $1,250.40 − $1,197.54 = $52.86 a month, about $634 a year.

That is positive, but thin. A single surprise repair would wipe out a year of cash flow. That is a useful finding in itself: the property covers its costs, but it doesn't leave much room for error.

Three ratios from the same numbers

Once you have NOI and cash flow, a few standard ratios fall out:

• Cap rate = annual NOI ÷ price = $15,004.80 ÷ $240,000 = 6.25%. It describes the property's earning power independent of how you finance it.
• DSCR = NOI ÷ loan payment = $1,250.40 ÷ $1,197.54 = 1.04. A DSCR below 1.0 means the property doesn't earn enough to cover its loan. Many lenders that underwrite on the property's income look for a DSCR comfortably above 1.0; check your lender's requirement.
• Cash-on-cash return = annual cash flow ÷ cash invested = $634.27 ÷ $70,000 = 0.91%. The cash invested is the down payment, closing costs and initial repairs. We cover this one in detail in cash-on-cash return: formula and example.

The 1% rule (monthly rent at least 1% of the price) is a quick screening shortcut, not an analysis. Here $2,100 ÷ $240,000 = 0.875%, which "fails" the rule, and the full calculation confirms the margin is thin.

Expenses people forget

Most overly rosy cash flow estimates leave out one or more of these:

1. Vacancy and turnover. Not just empty weeks, but cleaning, paint, re-keying and advertising between tenants.
2. Capital expenses. Leaving them out makes a property look great until the roof needs replacing.
3. Utilities the owner pays. Water, sewer and trash are often billed to the owner, especially in small multifamily buildings.
4. HOA dues and special assessments for condos and townhomes.
5. Insurance increases. Get a real quote for a landlord (dwelling fire) policy rather than reusing an owner-occupant premium.
6. Property tax after the sale. In many places the assessment resets when a property sells, so the seller's tax bill can understate yours. Check how your county assesses after a purchase.
7. Lawn care, snow removal and pest control, if the lease makes them your job.
8. Licensing and inspection fees where your city requires a rental registration.

Stress-test the result

A single cash flow number hides how sensitive it is. Change one input at a time and watch the result:

Rent per month	Monthly cash flow
$1,900	−$101.94
$2,100 (base case)	$52.86
$2,300	$207.66

(Vacancy, repairs, capex and management move with rent in this table; tax, insurance and the loan payment stay fixed.)

A $200 swing in rent moves cash flow by roughly $155 a month in either direction, because vacancy, repairs, capex and management scale with rent. Do the same with the interest rate, the vacancy allowance and the repair budget. If the deal only works when every assumption goes your way, it doesn't really work.

Cash flow is not the whole return

Cash flow is the money you can spend, but it isn't the only way a rental pays you. Each loan payment also reduces your loan balance (principal paydown), the property may appreciate, and depreciation can reduce your taxable rental income. Those are real, but they're less certain or arrive later. Many investors want positive cash flow first, so the property pays its own way, and treat the rest as upside.

Common mistakes

• Using the asking rent. Check comparable rentals that actually leased recently, not the highest listing you can find.
• Counting the full mortgage payment as an expense on your tax return. For tax purposes, only the interest portion is generally deductible; principal is not an expense. Cash flow and taxable income are different numbers. (General information, not tax advice.)
• Forgetting the money you put in. A property that cash flows $300 a month on $20,000 invested is very different from one that does so on $120,000. That's what cash-on-cash return measures.
• Running the numbers once. Re-run them with your real figures after a year of ownership. Your bookkeeping will show what the property actually costs.

Doing it in a spreadsheet

You can do all of the above by hand, but a spreadsheet makes it painless to change one assumption and see everything update. Set up inputs (price, down payment, rate, rent, expenses) in one place, calculate NOI and cash flow from them, and add a small what-if grid for rent and interest rate. Our free calculator already does exactly that, and the Rental Property Analysis Calculator compares up to five properties side by side, with BRRRR and short-term rental modes and a 10-year projection.

This guide is general information with a made-up example. It is not financial, investment or tax advice. Your numbers, local rules and lender requirements will differ.

Frequently asked questions

What is a good monthly cash flow for a rental property?

There is no universal number. It depends on your price point, financing and goals. What matters is that cash flow stays positive after realistic allowances for vacancy, repairs and capital expenses, and that it still works if rent dips or costs rise.

Is cash flow the same as profit?

No. Cash flow is the money left after all cash expenses and the full loan payment. Profit for tax purposes treats the principal part of the payment differently and subtracts depreciation, so the two numbers rarely match.

Should I include vacancy if the unit is rented now?

Yes. Tenants move out eventually, and turnover usually means at least a few weeks without rent plus cleaning and advertising costs. A vacancy allowance spreads that cost over every month.

Keep reading

• Cash-on-cash return on a rental: formula, example and what it leaves out
• BRRRR calculator: how to run the numbers on a BRRRR deal
• How to track rental income and expenses in a spreadsheet