Understanding Rental Property Cash Flow

Cash flow is the amount of money a rental property puts in (or takes from) your pocket each month after all expenses and debt service. Cash flow analysis is the foundation of real estate investment analysis — it determines whether the property is self-sustaining or requires ongoing out-of-pocket funding.

The cash flow calculation follows a straightforward chain:

Step 1 — Effective Gross Income: Monthly rent times 12, reduced by expected vacancy. If you collect $2,000/month with 5% vacancy, your effective gross income is $2,000 x 12 x 0.95 = $22,800/year. Vacancy accounts for turnover between tenants, rent collection delays, and periods where the unit sits empty.

Step 2 — Net Operating Income (NOI): Effective gross income minus all operating expenses. Operating expenses include property taxes, insurance, maintenance, repairs, property management fees, and landlord-paid utilities. NOI does not include mortgage payments. For a deeper look at how NOI drives property valuation, see our cap rate calculator.

Step 3 — Annual & Monthly Cash Flow: NOI minus annual debt service (mortgage payments x 12). Divide the annual cash flow by 12 to see your monthly cash flow — the actual dollars deposited or withdrawn from your bank account each month.

Cash flow vs. NOI vs. total return: NOI measures the property’s operating performance independent of financing. Cash flow measures your actual take-home after the mortgage. Total return (not shown here) would also include principal paydown, appreciation, and tax benefits. For leverage-adjusted return analysis, use our cash-on-cash return calculator.

Key insight for first-time investors: A property can have positive NOI (it covers its operating costs) but negative cash flow (the mortgage payment exceeds what’s left). This is common with low down payments in high-cost markets. Always check both NOI and cash flow before making an offer. For a comprehensive multi-property comparison, consider our Rental Property Analyzer template.

How to Use This Calculator

1. Purchase Price — The total price you’ll pay for the property. Use the listing price for initial analysis, then adjust based on your offer strategy.
2. Down Payment (%) — Slide to set your down payment percentage. Investment property loans typically require 20-25%. A higher down payment reduces monthly mortgage payments and improves cash flow.
3. Closing Costs (%) — Estimate 2-5% of purchase price. Ask your lender for a detailed Loan Estimate to get precise numbers for your market.
4. Interest Rate — Your expected mortgage interest rate. Adjust the slider to see how rate changes affect monthly cash flow. Even 0.5% makes a meaningful difference.
5. Loan Term — Standard 30-year terms keep payments lowest. 15-year or 20-year terms increase payments but build equity faster.
6. Monthly Rental Income — Expected rent at full occupancy. Research comparable rentals in the neighborhood using Zillow, Rentometer, or local MLS listings.
7. Vacancy Rate — Use 5% for stable, high-demand markets and 8-10% for markets with more turnover. Adjust higher for properties that are harder to rent (luxury, rural, or seasonal).
8. Annual Operating Expenses — All recurring costs excluding mortgage. Include taxes, insurance, maintenance, repairs, and property management.

Focus on monthly cash flow (the highlighted output) — this is what you’ll actually receive or pay each month. Compare the DSCR value: above 1.0 means the property covers its debt, below 1.0 means you’re subsidizing it.