How to calculate rental cash flow after all expenses

Rent minus the mortgage payment leaves out much of the cost of owning a rental. Start with the rent you can support, subtract an allowance for vacancy, then account for operating expenses, capital replacements and debt payments.

The rental cash-flow calculator follows that sequence. Use it alongside this example to see what remains each month and how much cash you put at risk to earn it.

Build the monthly budget

Cash flow = rent after vacancy minus operating expenses, capital reserves and principal-and-interest payments.

Include property taxes, landlord insurance, HOA dues, management, repairs and any utilities or other expenses you pay. Taxes and insurance belong in this budget even if your loan does not escrow them. If you enter them separately, subtract only principal and interest for the mortgage to avoid counting them twice.

Vacancy is an allowance over time. A property can collect its full rent this month and still need a vacancy budget for the next turnover. Capital reserves similarly set aside money for larger replacements, such as a roof or HVAC system. They are distinct from ordinary repair costs. Avoid budgeting the same work in both categories.

A worked rental example

These are planning assumptions, not a funded transaction or a rate quote:

• Purchase price: $250,000, with 75% LTV and a $187,500 loan.
• Financing: 7% interest, fully amortizing over 30 years.
• Monthly rent: $2,400, with 5% vacancy.
• Management: 8% of rent after vacancy.
• Repairs and capital reserves: each 5% of scheduled rent.
• Annual property taxes: $3,600. Annual insurance: $1,500.
• HOA: $0. Other monthly expenses: $50.

The calculator uses collected rent for management and scheduled rent for repair and capital allowances. Match those bases when comparing another spreadsheet. Actual management contracts may charge differently.

What return does that produce on your cash?

Assume $62,500 down, $7,500 in purchase closing costs, $10,000 of initial rehab and $6,000 of starting reserves. Initial cash invested is $86,000.

Annual cash flow is approximately $1,622. Dividing by $86,000 produces a 1.89% cash-on-cash return. That measures the modeled cash income against the cash committed. Appreciation, principal paydown and income taxes are outside this calculation.

Starting reserves count as committed cash even though you still hold them. Monthly replacement allowances reduce projected spendable cash. Neither means every reserve dollar has already been spent.

Check the assumptions that can erase the margin

Get insurance quotes and check how taxes may change after purchase. Use rent supported by comparable properties and account for any lease-up period. Include leasing fees, owner-paid utilities and special assessments when applicable.

In this example, one unbudgeted $1,000 expense consumes over seven months of projected cash flow. Save a baseline in the calculator, then test lower rent or higher expenses. Positive cash flow in the base case is only the beginning of the review.

A lending ratio answers a different question. Read DSCR vs. cash flow, then use the DSCR calculator to check payment coverage. When both models make sense, submit the property for review.