How to Calculate Rental Cash Flow
Cash flow is what actually lands in your pocket — gross rent through vacancy, operating expenses, and the mortgage. This guide builds the full monthly pro-forma line by line and names the expenses beginners miss.
Cash flow is the number that actually shows up in your bank account. Not cap rate, not NOI — those stop before the mortgage. Cash flow goes all the way to the end: what's left each month after every expense and the loan payment. A property can look great on cap rate and still bleed cash every month once financing is in.
The full monthly pro-forma
Cash flow is NOI minus debt service, built up from gross rent:
Gross rent
− Vacancy loss → Effective income
− Operating expenses → NOI
− Mortgage (P&I) → Cash flow
A worked example
A single-family rental at $2,000/month:
Gross rent = $2,000
Vacancy (6%) = −$120 → $1,880
Operating expenses = −$680 → $1,200 NOI
Mortgage (P&I) = −$1,050 → $150 cash flow
$150 a month — $1,800 a year — is the real answer to “what does this rental pay me?” And it's only that healthy if the expense lines are honest.
The expenses beginners skip
The classic mistake is counting only rent minus mortgage and calling the difference cash flow. That number is fiction. A real pro-forma includes:
- Vacancy — no property is rented 100% of the time. Budget 5–8% even in strong markets.
- Property management — 8–10% of rent, whether you pay a manager or value your own time honestly.
- Repairs and maintenance — ongoing, not optional.
- Capital expenditure reserves (CapEx) — the big-ticket replacements (roof, HVAC, water heater). They don't hit every month, but setting aside for them every month is what keeps one repair from wiping out a year of cash flow.
Between vacancy, management, and reserves, a rental's true expenses are usually far higher than the naïve “taxes + insurance” guess — which is exactly why so many first deals cash-flow on paper and lose money in practice.
Cash flow vs the return metrics
Cash flow is a dollar amount; the return metrics turn it into a percentage. Divide annual cash flow by the cash you invested and you get cash-on-cash return — the same number from a different angle. Use cash flow to answer “does this feed me or starve me?” and cash-on-cash to compare the deal against other uses of your money.
Sources
Informational only, not professional advice. Real estate outcomes depend on your market, financing, and tax situation — verify every figure against your own numbers and a qualified professional before acting on a deal.