Most landlords run the math the same way: monthly rent minus the mortgage payment. Take a $230,000 single-family rental at $2,100 per month. Subtract the $1,177 mortgage. Pocket $923 per month. Done.
The real number on that same property, run correctly, is $22 per month. The gap — $10,821 per year — is not padding or conservatism. It is expenses that exist whether or not they appear on a spreadsheet.
Here is the full formula, worked through from top to bottom, so the number in your model matches the number that actually hits your bank account.
Rental property cash flow runs through four levels, each subtracting a different category of cost. Most beginners only calculate the last step.
What the property would earn at 100% occupancy, 100% collected. The theoretical ceiling.
Vacancy: units sit empty during turnover, lease-up, or eviction. Typical SFR: 5–10% of GSR. Credit loss: rents that are owed but uncollected. Often folded into the vacancy allowance.
Operating expenses include property tax, insurance, management fees, maintenance, and capital expenditure reserves. Mortgage payments are NOT included — NOI is pre-debt. This is the number lenders use to underwrite the loan.
What remains after the mortgage is paid — the number that actually hits your account. This is the only line that matters to a landlord. Everything above it exists to calculate this one number accurately.
The gap between the "rent minus mortgage" calculation and the real number comes from four categories of operating expense that are real, recurring, and unavoidable:
The "I'll self-manage" trap. Self-managing saves the 8–10% management fee, but it does not eliminate the cost — it transfers it to your time. If you own multiple properties or have a demanding day job, the hidden management cost will eventually show up as deferred maintenance, poor tenant selection, or legal exposure from mishandled notices. Model management at market rate regardless of who performs it. Your underwriting should survive a property manager.
A $230,000 single-family rental. Purchase price $230,000. You put 25% down ($57,500) plus $3,500 in closing costs — $61,000 in total cash invested. Gross rent: $2,100 per month. Loan: $172,500 at 7.25% on a 30-year fixed.
| Line Item | Monthly | Annual |
|---|---|---|
| Income | ||
| Gross Scheduled Rent | $2,100 | $25,200 |
| Vacancy (8%) | ($168) | ($2,016) |
| Effective Gross Income (EGI) | $1,932 | $23,184 |
| Operating Expenses | ||
| Property Tax (1.1% of value) | ($211) | ($2,530) |
| Landlord Insurance (DP-3) | ($115) | ($1,380) |
| Property Management (8% of EGI) | ($155) | ($1,855) |
| Maintenance / Repairs | ($100) | ($1,200) |
| CapEx Reserve (0.8% of value) | ($153) | ($1,840) |
| Total Operating Expenses | ($734) | ($8,805) |
| Debt Service | ||
| Net Operating Income (NOI) | $1,198 | $14,379 |
| Mortgage Payment (7.25%, 30yr) | ($1,177) | ($14,121) |
| Annual Cash Flow | $22 | $258 |
Cash on cash return: $258 ÷ $61,000 = 0.4%. Cap rate: $14,379 ÷ $230,000 = 6.25%. DSCR: $14,379 ÷ $14,121 = 1.02x — borderline, below most lenders' 1.20–1.25x minimum.
This is a realistic example, not a model deal. At 7.25% rates, a $230,000 property yielding $2,100/month barely breaks even — and fails standard DSCR requirements for a conventional investment loan. This is intentional: in today's rate environment, the math on stabilized SFRs at typical retail prices is tight. The example demonstrates the full formula; whether to buy this specific deal depends on your view on rates, appreciation, and rent trajectory.
What the wrong calculation looks like: Gross rent $25,200 minus mortgage $14,121 = $11,079 per year ($923 per month). The gap from that number to the real $258 per year is $10,821 — almost entirely the operating expenses that do not show up in a rent-minus-mortgage estimate.
Visualized as a waterfall, the money flows like this on the example property:
Every step strips away money that belongs somewhere other than your pocket. Beginning the calculation at step four — gross rent minus mortgage — skips three rows of real costs.
There is no universal minimum, but here is a working framework for stabilized single-family rentals in the current rate environment:
| Monthly Cash Flow | CoC Return | Interpretation |
|---|---|---|
| Below $0 | Negative | Negative cash flow — requires capital contribution each month. Betting on appreciation to make the math work over time. |
| $0–$100 | 0–2% | Breakeven. No buffer for vacancy or repairs. One bad tenant wipes out a year's cash flow. Marginal at best. |
| $100–$300 | 2–6% | Acceptable in today's market. Enough margin to absorb a routine maintenance call without going negative. |
| $300–$500 | 6–10% | Solid. This range is achievable on well-located properties purchased at the right basis in secondary markets. |
| $500+ | 10%+ | Strong. Typically requires below-market purchase, high rent-to-price ratio (tertiary markets, value-add), or unusual circumstances. |
Rate context. In 2021, with mortgage rates at 3–3.5%, the example property at $230,000 and the same rent would have produced roughly $420/month in cash flow — 7% CoC. The same property at 7.25% produces $22/month. The property did not change. The financing did. A deal that looks thin at current rates is not necessarily a bad deal — it may be a deal waiting for a refi window.
Cash flow is a function of vacancy, not just of rent levels. A single month of vacancy on a $2,100 property is $2,100 — enough to wipe out years of positive cash flow on a marginally positive deal. Here is how the numbers shift across three vacancy assumptions:
| Scenario | Vacancy | EGI | NOI | Cash Flow | CoC |
|---|---|---|---|---|---|
| Conservative | 5% | $23,940 | $15,075 | $954/yr ($79/mo) | 1.6% |
| Base Case | 8% | $23,184 | $14,379 | $258/yr ($22/mo) | 0.4% |
| Stress | 12% | $22,176 | $13,452 | ($669)/yr ($56/mo loss) | −1.1% |
At 12% vacancy — roughly one and a half months empty in a year, which is common during tenant turnover — this deal crosses into negative cash flow. That is before any unbudgeted repair. It is not a catastrophe, but it illustrates why a property modeled at breakeven is, in practice, a property that will require a capital contribution in any year with a vacancy event or a significant repair.
Three terms that are often conflated — and measure different things:
| Metric | Formula | What It Answers | Who Uses It |
|---|---|---|---|
| Cash Flow | NOI − Debt Service | How much money do I make after all expenses AND the mortgage? | Landlords |
| NOI | EGI − Operating Expenses | How much does the property earn, independent of financing? | Lenders, appraisers |
| Cash on Cash | Cash Flow ÷ Cash Invested | What yield does my equity earn? | Investors comparing deals |
NOI is the lender's number. They divide it by your loan amount to check DSCR (Debt Service Coverage Ratio). On the example property, DSCR is 1.02x — below the 1.20–1.25x most conventional investment lenders require. That means at $230,000, this deal would struggle to get financed. The price would need to come down to roughly $188,000 for the financing to pencil at a 1.25x DSCR, all else being equal.
Cash flow is the landlord's number. It is the only number that determines whether you write a check to the property or the property writes a check to you each month.
Cash on cash return normalizes cash flow against the size of your equity investment — useful for comparing two deals that have different purchase prices and down payment amounts. A deal that produces $300/month cash flow on $40,000 invested (9% CoC) is better than a deal that produces $400/month on $120,000 invested (4% CoC), even though the absolute dollar amount is lower.
The Rental Cash Flow Tracker Pro logs every income and expense item, reconciles against your projected cash flow, tracks vacancy by property, and calculates CoC, DSCR, and cap rate automatically. Built for landlords who want to know whether a deal is performing the way the underwriting said it would.
Get Lite — $9 See Pro — $29Cash flow tells you whether the property is worth owning. DSCR tells you whether a lender will finance it. Run both before making an offer.
The calculation:
Most investment lenders require DSCR ≥ 1.20–1.25x. Below 1.0x means the property cannot cover its own mortgage from operating income. Lenders will not finance a deal below their threshold regardless of your personal income or credit score on DSCR-specific loan products.
On the example property: $14,379 ÷ $14,121 = 1.02x. Fails most lenders' minimum. The practical consequence: to buy this property with a conventional investment loan at the $230,000 price, you would likely need to increase the down payment (reducing the loan and therefore the debt service) until DSCR clears, or negotiate the price down, or accept a lower-leverage loan structure.
This is not unusual in the current rate environment. Many properties that generated strong cash flow at 3.5% rates now fail DSCR tests at 7.25% rates — not because the underlying asset is worse, but because the cost of financing has increased faster than rents.
What is a good cash flow for a rental property?
There is no single threshold, but most experienced investors target $200–$400 per unit per month in after-debt, after-expense cash flow as a working minimum on stabilized single-family rentals. In today's 7%+ rate environment, many deals clear $50–$150 per month — thin but positive. The more useful benchmark is cash on cash return: 6–8% CoC is considered solid in current conditions. Deals below $50/month or 3% CoC leave almost no buffer for vacancies or repairs and should be scrutinized carefully before closing.
What expenses are missing from most rental property cash flow calculations?
Four categories are routinely omitted from back-of-envelope calculations: (1) Vacancy — typically 5–10% of gross rents, accounting for turnover periods and non-payment; (2) Property management — 8–10% of collected rent if using a manager, or an implicit cost even if self-managing; (3) Capital expenditure reserve — 0.5–1% of property value per year for roof, HVAC, plumbing, and appliance replacements; and (4) Maintenance — $75–$150 per month for routine repairs. A landlord who omits all four on a $2,100/month gross rent property will overstate cash flow by roughly $9,000–$11,000 per year.
What is the difference between NOI and cash flow for a rental property?
Net Operating Income (NOI) is the income the property produces before debt service — Effective Gross Income minus all operating expenses. Cash flow is what remains after subtracting the mortgage payment from NOI. A property can have strong NOI and still produce thin or negative cash flow if the debt service is high — which is the defining tension in today's 7%+ rate environment. NOI is the lender's underwriting metric; cash flow is the landlord's bank account metric. You need both to fully underwrite a deal.
How does a 7% mortgage rate affect rental property cash flow?
Significantly. At a 3.5% mortgage rate, a $172,500 loan on a 30-year term carries a monthly payment of roughly $775 — $9,300 per year in debt service. At 7.25%, the same loan costs $1,177 per month — $14,121 per year. The difference is $4,821 per year in additional debt service on a single property. In a market where a well-run property produces $12,000–$16,000 in NOI, a $4,800 shift in debt service is the difference between strong cash flow and barely breaking even.