How to Calculate Cash Flow on a Rental Property

Cash flow is the number that actually matters. Not appreciation, not equity on paper — the cash left in your pocket every month after everything is paid. Here's how to calculate it properly.

Step 1: Start with gross rental income

This is simply the total rent collected each month, before any expenses come out.

Step 2: Subtract your mortgage payment

Include both principal and interest, using your actual loan terms, not a rough estimate.

Step 3: Subtract property taxes and insurance

These are often bundled into your mortgage payment through an escrow account, but they still count as real monthly costs.

Step 4: Subtract vacancy reserves

Even great properties sit empty between tenants. A common rule of thumb is to set aside 5 to 8 percent of rent to cover vacancy periods, rather than assuming full occupancy every month of the year.

Step 5: Subtract maintenance and capital expenditure reserves

Roofs, water heaters, and HVAC systems don't last forever. Setting aside another 10 percent or so of rent for repairs and eventual replacements keeps a bad month from becoming a bad year.

Step 6: Subtract property management, if applicable

If you're not self-managing, factor in the typical 8 to 10 percent of rent a property manager charges.

Step 7: What's left is your net cash flow

Gross rent, minus mortgage, taxes, insurance, vacancy reserve, maintenance reserve, and management, equals your true monthly cash flow. This is the number to judge a deal by, not the rent amount alone.

Why this number is only the starting point

Cash flow tells you what a property is doing today. It doesn't capture what happens over time — the equity building quietly through mortgage paydown and appreciation, or the cash flow itself pooling and compounding as it gets reinvested into new properties. Run this same calculation on four properties instead of one, add in refinancing and reinvestment of both equity and cash flow, and project it out to year 5, year 10, year 15, and year 30, and the number stops being a snapshot. It becomes the year you know you can quit.