If you spend any time around real estate investors, the term cash flow comes up a lot. Sometimes it’s spoken with excitement (“This property cash flows $500 a month!”), and other times with disappointment (“It’s a great deal… except it doesn’t cash flow”). It’s likely the idea of real, tangible dollars in your bank account is one of the reasons you want to invest in real estate, but it has left you wondering how to calculate cash flow on a rental property.

For rental property investors (especially those just getting started), owning a cash-flowing property is often the difference between a stress-free investment and one that keeps you up at night. It’s what helps you ride out vacancies, unexpected repairs, and the inevitable “the water heater just died” phone call.

Let’s break down exactly how to calculate cash flow, how to run the numbers on rental properties, and why your cash flow today may be different from the cash flow five or ten years down the road.

At its core, the concept of cash flow is very simple:

Cash Flow = Money In − Money Out

For a rental property, that usually means:

• Money in: all rental income (and sometimes other income like laundry, storage, etc.)
• Money out: mortgage payments, taxes, insurance, repairs, maintenance and other operating expenses

If there’s money left over after everything is paid, you have a rental property with a positive cash flow. If not, you’ll have to contribute your own funds to cover the expenses, which is called negative cash flow.

Positive cash flow doesn’t automatically make a property a great investment. However, consistently negative cash flow is a red flag, especially if you don’t expect it to improve in future years.

Now, let’s break down how to calculate cash flow on a rental property, step by step, and review the different components that make up the calculation.

Gross rental income is the total rent you collect from your tenants each month. If your tenant’s lease lists this at $2,200/month, you’ll use that amount.

Some rental properties may have additional income sources, such as:

• Parking fees
• On-suite laundry machines
• Storage unit rental
• Additional pet rent

If any of these apply, include them as well. Just don’t get overly optimistic and always assume realistic numbers, not best-case scenarios.

No rental property will be occupied 100% of the time. Tenants move, units need turnover. Sometimes you will have missed rent payments or even evictions.

Vacancy is the percentage of time a rental property is expected to be vacant. While vacancies will differ by property type and area, a good rule of thumb is to assume at least a 5-10% vacancy rate.

Using our previous rent of $2,200, and assuming a vacancy rate of 5%, that will bring our effective (or net) rental income down to $2,090/month.

Yes, it’s tempting to skip this step (especially if the property is currently occupied), but vacancy will happen eventually. Ignoring it will just set you up for being disappointed later.

Operating expenses are all costs and fees you will pay to keep the property running and in good condition, excluding your mortgage payments.

For a rental property, the most common operating expenses include:

• Property taxes
• Insurance
• Property management
• Repairs and maintenance
• Capital expenditures (CapEx)
• HOA fees (if applicable)
• Utilities paid by the owner
• Legal and accounting fees

Take your time when estimating these expenses, as an under-estimated or omitted expense will artificially inflate your cash flow projections.

Once you subtract your operating expenses from your net rental income, you get what’s called the net operating income (NOI):

NOI = Net Rental Income − Operating Expenses

NOI is an important number because it shows how the rental property performs before financing. Lenders, appraisers, and experienced investors all care a lot about this metric.

Your debt service is the mortgage payment you make to your lender each month.

Taxes and insurance are already included above in the operating expenses, whether they are paid out of escrow or not, so don’t double-count them here.

Finally, we have all the pieces in place to calculate the cash flow for your rental property. The complete cash flow formula can be written out as follows:

Cash Flow = Gross Rental Income – Vacancy Allowance – Operating Expenses – Debt Service

You can calculate it as a monthly or yearly number, although monthly cash flow is used more often. Just make sure the formula inputs (such as rent, expenses, and debt service) are consistently calculated as monthly or yearly amounts.

Let’s run through a real-world example of what the cash flow calculation may look like for an actual property:

Assumptions:

• Purchase price: $350,000
• Monthly rent: $2,200
• Down payment: 20%
• Loan amount: $280,000
• Interest rate: 4%
• Monthly mortgage: ~$1,340

• $2,200/month

• $2,000 × 5% = $110/month
• Net rent: $2,090/month

• Property taxes: $3,000/year = $250/month
• Insurance: $1,200/year = $100/month
• Property management (8%): $2,200 x 8% = $176/month
• Repairs & maintenance: $150/month
• CapEx: $50/month

Total operating expenses: $726/month

• $2,090 − $726 = $1,364/month

• $1,340/month

• $1,364 − $1,340 = $24 per month
• Yearly cash flow: $24 x 12 = $288 per year

In this case, the property has a very small amount of positive cash flow at purchase.

That doesn’t automatically make it a bad deal, but it does mean you need to understand why you’re buying it and what you expect to happen over time.

When learning how to calculate cash flow on a rental property, one of the most misunderstood concepts for newer real estate investors is that cash flow changes over time.

In most cases, cash flow usually grows the longer you own an investment property. The primary driver is that, in many markets, rents tend to increase over time, often outpacing inflation and expense growth.

So, even if a property barely breaks even today, or even slightly loses money in the first few years, it is likely to become a much better investment five or ten years down the road.

Of course, this isn’t guaranteed. Taxes, insurance, and other expenses can also increase, potentially outpacing rental increases. Rent growth can stagnate or weaken in weaker markets. An older property may need significant repairs or upgrades in the future.

It’s important to consider all of these factors and your future assumptions when analyzing rental properties, rather than basing your investment on the hope that it will perform well.

Calculating cash flow on a rental property is a critical analysis metric, but it’s not the only indicator that matters.

Two properties can have the same cash flow, but widely different overall returns, so it makes sense to look at other metrics, like the ones below, to get the full picture:

• Cash on cash return (COC): The COC compares the yearly cash flow to the total invested money and measures how hard your invested capital is working for you. A more expensive property will have a worse COC than a cheaper one with the same cash flow.
• Internal rate of return (IRR): The IRR takes into account many different factors, including the cash flow, debt paydown, and appreciation, and gives you a “full picture” annualized return on your capital. It’s excellent for comparing the total performance of rental properties.
• Property location: even a property that looks great on paper but is located in a “bad” area with low-income tenants, crime, or other issues will probably not be a good investment. These areas tend to have higher vacancy rates, turnover, and maintenance costs, all of which will eat into your cash flow and returns over time.

Cash flow is a strong starting point, but experienced investors will also consider returns on capital and property location before making their decision.

Manually calculating cash flow on a rental property is a great learning exercise, but it can get tedious, especially when analyzing multiple properties.

That’s where tools like DealCheck come in. With just a few clicks, you can calculate cash flow, cash on cash return, IRR, and dozens of other metrics in seconds, all without juggling spreadsheets or worrying about making mistakes.

For new investors, especially, this tool can help you stay consistent, conservative, and confident in your analysis.

Cash flow is one of the most critical metrics in rental real estate because it represents the core benefit of owning rental properties—collecting passive income from your investments each month.

Understanding what it is, how to calculate cash flow on rental property, and how it changes over time will put you far ahead of most beginner investors.

Focus on realistic assumptions, use multiple metrics, and remember: the goal isn’t just owning a rental property. It’s owning a property that will actually work for you.