Rental investing guide
How to Calculate Rental Cash Flow Before Buying
A rental property produces cash flow only after income and every recurring cost are considered. This process helps you test a deal before spending time or money on it.
Start with realistic rent
Use comparable listings, signed leases, or a local property manager's estimate rather than the most optimistic listing. Multiply monthly rent by the number of collected months you realistically expect, not automatically by twelve.
Subtract operating costs
Subtract property taxes, insurance, HOA dues, routine maintenance, owner-paid utilities, management, licensing, and a capital reserve for larger repairs. This produces net operating income before financing. Keep one-time renovation costs separate.
Add the financing assumptions
Estimate the mortgage payment using the loan amount, interest rate, term, and down payment. Then subtract it from monthly operating income. Include lender escrows, points, and closing costs when calculating the cash you are investing.
Stress-test the result
Run a base case, a lower-rent case, and a higher-expense case. Ask whether the property remains manageable if rent is lower, a month is vacant, insurance rises, or an appliance fails. Positive cash flow in only one scenario is a warning.
Put the numbers into practice
Choose a local benchmark and test the assumptions with our free calculator.
Open the calculator