How rental cash flow works
Cash flow is the money left over each month after the property pays for itself. It’s the number that decides whether a rental feels like an investment or a second job you pay to have.
The mistake most new investors make is leaving costs out. A listing that says “rents for $2,500, mortgage is $1,430” looks like $1,000 a month of profit. It almost never is.
Worked example
A $280,000 house with 25% down at 7.25%, renting for $2,500 a month:
- Rent after 5% vacancy: $2,375
- Taxes $300 and insurance $125: $425
- Repairs 5% and a big-repair reserve 5%: $238
- Management at 8%: $190
- Mortgage on $210,000: $1,433
Cash flow: about $90 a month, or roughly $1,080 a year. Positive, but thin: one bad month of repairs wipes out a year’s profit.
Expenses people forget
- Vacancy. Even good rentals sit empty between tenants. 5–8% of rent is a common allowance.
- The reserve for big repairs. Roofs, furnaces, water heaters and appliances all wear out. Setting aside around 5% of rent spreads those costs out.
- Management. Even if you manage it yourself, budgeting 8–10% keeps the deal honest about your time and leaves room to hire help later.
- Utilities you pay. In older multifamily buildings, owners often pay water, sewer, trash or even heat.
The 50% rule check
A rough rule of thumb says operating costs take about half the rent over time. In the example they take about 34%, which is reasonable for a newer single-family house where the tenant pays utilities. If your expenses look far below 50%, double-check you haven’t missed something.
Frequently asked questions
What is good cash flow on a rental?
Many investors look for at least $100–$200 a month per unit after reserves, but it depends on how much cash you put in. The cash-on-cash calculator puts cash flow in proportion to your investment.
Does cash flow include principal paydown?
No. The principal part of your payment builds equity, but it doesn’t reach your pocket. The full analyzer counts it as part of your total return.
Should I use gross rent or rent after vacancy for percentages?
This calculator uses rent after vacancy, the money you actually collect. Some people use gross rent; the difference is small.
My cash flow is negative. Is the deal dead?
Not always: some investors accept small negative cash flow for strong appreciation. But you’d be paying every month, so know why you’re doing it and make sure you can afford it.
Check the whole deal
ElmCheck’s free deal analyzer takes these numbers and adds cash-on-cash return, cap rate, DSCR, ten-year projections, tax effects and a buy, maybe or pass verdict.