A listing shows you the price and, sometimes, the rent. It doesn’t show whether the house will pay you each month or cost you. That number is cash flow, and you build it yourself, one line at a time.
What is cash flow on a rental property?
Cash flow is the rent a house collects in a month, minus everything it costs to own that month, the mortgage included. A positive number means the house pays you. A negative one means you pay the house.
The calculation runs in four steps:
- Start with the rent the house can get today.
- Take off an allowance for empty months, because a rental can sit empty between tenants. Investors call this vacancy.
- Take off the running costs: property taxes, insurance, repairs, management and money set aside for big repairs, plus any association dues or utilities you pay.
- Take off the mortgage payment.
Cash flow is counted before income tax, which depends on the rest of your tax return.
How do you calculate cash flow, line by line?
Take a $250,000 single-family house that rents for $2,750 a month, bought with 20% down on a 30-year loan at 7%. Property taxes are $3,000 a year and insurance is $1,400. The example sets aside 5% of the rent for empty months, 5% for repairs, another 5% for big repairs and 8% for a property manager.
| Each month | |
|---|---|
| Rent | $2,750 |
| Empty months (5% of rent) | −$137 |
| Property taxes ($3,000 a year) | −$250 |
| Insurance ($1,400 a year) | −$117 |
| Repairs and big repairs (10% of rent) | −$275 |
| Property management (8% of rent) | −$220 |
| Mortgage: principal and interest | −$1,331 |
| Cash flow each month | +$420 |
These are example figures, not a forecast for any market.
Here’s where each line comes from, and what to check before you trust it:
- Rent. Use what similar homes nearby have leased for recently, not the asking rent on the listing.
- Empty months. Five percent of a year is about 18 days. For a national yardstick, the Census Bureau put the rental vacancy rate at 7.3% in the second quarter of 2026 (Housing Vacancies and Homeownership). At 7.3%, this house keeps $357.
- Property taxes. Use the county’s rate on the price you’ll pay, not the seller’s bill. A sale can raise it, one of the seven mistakes fixed in this rental analysis.
- Insurance. Get a quote for a landlord policy on this address.
- Repairs and big repairs. Half of this 10% covers small fixes like a leaking faucet. The other half is saved for the roof, furnace or water heater that will wear out. You won’t spend it every month, but it belongs in the count.
- Management. Count it even if you plan to manage the house yourself, so you know whether the deal still works if you ever hand it off.
- Mortgage. Principal and interest on the $200,000 loan. If your lender collects taxes and insurance with the payment, don’t count them twice.
The 7% rate is the example’s. Freddie Mac’s weekly survey put the average 30-year rate at 6.76% on September 10, 2026, but the survey tracks purchase loans on owner-occupied single-family homes with 20% down (PMMS). A rental isn’t owner-occupied, so that average doesn’t describe its loan. Ask a lender to quote one for this house.
How is cash flow different from NOI and cash-on-cash return?
NOI and cash-on-cash return come from the same lines as cash flow, cut at different points. The mortgage is the dividing line: everything above it describes the house, and the mortgage describes how you paid for it.
Stop before the mortgage and you have net operating income, or NOI: $1,751 a month here, or $21,010 a year. Divide the year’s NOI by the price and you get the cap rate, 8.4% on this house. Take off the mortgage and you’re back at $420 a month, or $5,043 a year. Divide that by the $57,500 you put in (the down payment plus 3% in closing costs) and you get the cash-on-cash return, 8.8%. Cap rate vs. cash-on-cash return shows why the first holds still when the loan changes and the second moves.
Cash flow also counts the whole mortgage payment as spent, though part of it stays yours. Of the first $1,331 payment, $1,167 is interest and $164 pays down the loan. Over the first year the balance falls by $2,032. That’s equity you build, but you can’t spend it until you sell or refinance.
Which numbers change the answer most?
Change one input at a time and watch the bottom line. Each row below changes a single number from the example and leaves the rest alone.
| Cash flow each month | Change | |
|---|---|---|
| The example as above | +$420 | – |
| Rent $150 lower, at $2,600 | +$305 | −$115 |
| Empty months at 7.3% instead of 5% | +$357 | −$63 |
| Property taxes of $4,200 a year instead of $3,000 | +$320 | −$100 |
| Insurance of $2,400 a year instead of $1,400 | +$337 | −$83 |
| A 7.75% loan instead of 7% | +$318 | −$102 |
| Repairs and big repairs at 16% of rent instead of 10% | +$255 | −$165 |
In this table the repair budget and the rent move it most, but no single change wipes out the $420. Stack four of them, though (the lower rent, the higher rate, the bigger tax bill and the pricier insurance), and the house keeps $19 a month. All six at once turn it into a loss of $197 a month.
The rent is at least 1% of the price in every one of those cases, so the house passes the 1% rule even in the version that loses money. The rule compares rent with price and nothing else.
How do you work out cash flow on a house you’re considering?
Any listing can go through the same lines, in four steps.
- Get the rent from real leases. Find similar homes nearby that rented recently.
- Replace the guesses you can. Look up the county’s tax rate, and get an insurance quote and a lender’s rate. The 12-number checklist says where to find each one.
- Enter the numbers in the rental calculator. It runs the same lines as the first table.
- Find the number that flips the answer. Change one input at a time, as in the second table, and pin down the one that moves cash flow most before you make an offer.