Rentals
Cash flow, returns and the costs that decide whether a rental pays.
25 articles
This rental clears $420 a month, $5,043 a year before tax
There is no average landlord, so look at the national totals and then at one house. For 2023 the IRS counted $436.7 billion of rents received against $414.8 billion of expenses, and in this example a $250,000 rental clears $420 a month, $5,043 a year before tax.
Every $100 of HOA dues takes $17,143 off this condo’s value
A condo can work as a rental, and the monthly dues decide most of it. In this example a $250,000 condo renting for $2,750 leaves $229 a month with $250 of dues and $29 with $450, and every $100 of monthly dues takes $17,143 off what the unit is worth at a 7% cap rate.
Two blank expense lines turned this rental’s $420 a month into $70
A rental has eight running costs besides the mortgage: property tax, insurance, vacancy, maintenance, a reserve for big repairs, management, utilities and HOA dues. In the example below, the two that calculators start at zero take a $420 month down to $70.
The same $5,043 of cash flow is an 8.8% return, or a 7.5% one
Divide a year of cash flow by the cash you actually put in. In this example a $250,000 rental clears $5,043 a year on $57,500 of cash, an 8.8% return, and the same $5,043 on $67,500 is only 7.5%.
The cheaper gross rent multiplier belonged to the house that loses $27 a month
A gross rent multiplier is the purchase price divided by a full year of rent, so a lower number is cheaper per dollar of rent. It never sees a single cost, which is why in the example below the house with the better multiplier (6.7 against 7.6) is the one that loses money.
Rent growth of 2.7% instead of zero is worth $33,204 on this house
The closest thing to an average is the government’s rent index: rent of primary residence rose 2.7% in the 12 months to August 2026, down from 3.5% a year earlier. In this example, 10 years of cash flow comes to $46,249 with rent frozen and $79,453 at 2.7% a year.
Drop growth from 3% to zero and this rental loses $85,979 in ten years
There is no single rate to count on. The federal house price index has averaged 4.96% a year since 1975, but it fell 19% between 2007 and 2012 and gained nothing at all over the ten years to mid-2016. In this example, moving growth from 3% a year to none takes a rental’s ten-year gain from $184,735 to $98,756.
A homeowners policy won’t cover this rental. The right one costs $117 a month.
A homeowners policy is written for a home you live in, so a house you rent out needs a dwelling or landlord policy instead. In this example that policy costs $1,400 a year, which is $117 a month, and every extra $1,000 of premium takes $83 a month off what the rental clears.
This rental clears $640 with no manager, $420 at 8% and $365 at 10%
Nearly all of them charge a share of the rent each month, plus one-off fees for finding a tenant. In this example a manager at 8% of rent costs $220 a month, taking the rental from $640 to $420, and a leasing fee of one month’s rent every two years costs $115 a month on top.
This turnkey rental showed $1,053 a month. Rebuilt, it shows $274.
Rebuild the seller’s sheet with the costs it leaves out. In this example a turnkey house advertised at $1,053 a month comes to $274 once empty weeks, repair reserves, management and a higher insurance quote go in.
This rental pays 8.8% a year in cash and a 17.5% IRR over ten years
No agency publishes a benchmark IRR, so it only means something next to another deal or a hurdle you set first. IRR counts cash flow, loan paydown and price growth together, which is why in this example the same house shows an 8.8% cash-on-cash return and a 17.5% IRR over ten years.
Rent this $265,000 house for $2,100 and it costs you $196 a month
Rent is set by what nearby houses are getting, but the number you can live with is set by what yours costs to run. In this example a $265,000 house takes $196 a month out of your pocket at $2,100 rent, breaks even at $2,354 and pays $151 a month at $2,550.
A 7% target turns this $320,000 rental into a $308,828 offer
A good cap rate is the return you need on the price, not a number the market publishes. Read it backwards and it gives you an offer: in this example a house asking $320,000 earns a 6.8% cap rate, so a buyer who wants 7% would pay $308,828 for it.
One rental at three vacancy rates: $159, $115 or $62 a month
Vacancy is the share of the year a rental earns nothing, and most analyses use 5 to 10% of rent. In this example the same house clears $159 a month at 5%, $115 at the national 7.3% rate, and $62 at 10%.
The 50% rule says this rental clears $44. Itemized, it clears $420.
The 50% rule assumes running costs take half the rent, which is high for a single-family house and much closer on a small apartment building. In this example a $250,000 house shows $44 a month under the rule and $420 once its own costs are added up.
$33,000 of rent, $21,010 of NOI: where the other $11,990 goes
NOI, or net operating income, is a year’s rent minus an allowance for empty months and the costs of running the property. The mortgage stays out. In this example, a $250,000 house renting for $2,750 a month has $21,010 of NOI: $33,000 of rent, less $1,650 for empty months and $10,340 of running costs.
This rental’s mortgage is $1,331. It needs $2,204 in rent to break even.
Break-even rent is the rent at which a rental’s cash flow is zero: it pays the mortgage and every running cost with nothing left over. In this example, a $250,000 house needs $2,204 a month, $873 more than its $1,331 mortgage, because taxes, insurance, empty months, repairs and management come out of the rent too.
This rental loses $3 a month. It still returns 10.8% a year if prices rise 3%.
A rental that loses money each month can still come out ahead, but most of your money comes back only when you sell, so the result rides on the sale price and the rent rising while you pay each month’s loss yourself. In this example, a $250,000 house that loses $3 a month returns 10.8% a year over 10 years if its value rises 3% a year, and 2.9% if it stays flat.
This rental’s cash return is 8.8%. Count the sale, and it’s 16% a year.
Add up what the rental pays you (cash flow, the loan you pay down and any rise in value), take off the costs of buying and selling, and divide by the cash you put in. In this example, $57,500 in a $250,000 house makes $53,269 in five years: 92.6% in all, or 16.0% a year once the timing is counted.
An old roof and furnace turn this rental’s $420 a month into a $97 loss
Set aside a share of the rent for repairs, and size the replacement budget item by item: each big item’s cost divided by the months it has left. In this example, 5% for each leaves $420 a month, but an old roof and furnace push replacements to $655 a month and the house to a $97 monthly loss.
Two rentals clear $291 a month. One can sit empty 77 days a year, the other 45.
There’s no official target. What matters is how much bad luck the cash flow can absorb, measured against the rent. In this example, two houses both clear $291 a month, but one can sit empty 77 days a year before it loses money and the other only 45.
This house rents for $2,750 a month. You keep $420 of it.
Start with the rent, take off an allowance for empty months, then take off every running cost and the mortgage payment. What’s left is cash flow. In this example, a $250,000 house renting for $2,750 keeps $420 a month, after $137 for empty months, $862 of running costs and a $1,331 mortgage payment.
Cap rate vs. cash-on-cash: why the same house shows 7.1% and 0.2%
Cap rate is what a house earns on its price, whoever owns it. Cash-on-cash return is what your own cash earns after your loan. On one example $250,000 rental, the cap rate stays at 7.1% while cash-on-cash runs from 0.2% to 6.9%, depending on the loan.
The 1% rule said yes to a house that loses $306 a month
The 1% rule works as a quick filter, not as a verdict. It only compares rent to price, so two houses can both pass it and end up $450 a month apart.
This rental made $966 a month on paper. Seven fixes later, it lost $34.
A rental can look great on paper when the first pass leaves out real costs. In this example, fixing seven mistakes one at a time turns $966 a month into a $34 loss.