Understanding Rental Property Cash Flow
Investing in real estate is one of the most reliable ways to build wealth, but simply buying a property doesn't guarantee profit. The most critical metric for any rental investor is Cash Flow. This Rental Property Cash Flow Calculator helps you determine if a potential deal will put money in your pocket every month or become a financial liability.
What is Cash Flow?
Cash flow is the net income from a real estate investment after all mortgage payments and operating expenses have been made. It is calculated simply as:
- Income: Rent, parking fees, laundry income.
- Expenses: Mortgage (principal & interest), taxes, insurance, HOA fees, vacancy reserves, and maintenance.
A property with positive cash flow pays for itself while building equity. A property with negative cash flow requires you to contribute monthly from your own funds to keep it afloat.
How to Use This Calculator
To get an accurate analysis of your investment potential, input the following figures:
- Purchase Price: The agreed-upon selling price of the home.
- Down Payment: The initial cash invested. This affects your loan amount and your Cash-on-Cash Return.
- Interest Rate & Loan Term: These determine your monthly mortgage payment.
- Monthly Rental Income: A realistic estimate of what tenants will pay. Check local comparables ("comps") to be accurate.
- Total Monthly Expenses: Sum up property taxes, landlord insurance, HOA dues, and set aside a budget for repairs (typically 5-10% of rent).
Key Metrics Explained
Monthly Cash Flow
This is your "take-home" profit each month. Most investors look for at least $100-$200 per door in pure cash flow after all expenses, though this varies by market strategy.
Cash on Cash Return (CoC ROI)
This percentage tells you how hard your money is working. It compares your annual pre-tax cash flow to the total cash invested (Down Payment + Closing Costs). A CoC Return of 8-12% is generally considered a solid return for real estate, often outperforming the stock market when factoring in appreciation and tax benefits.
Why Use a Cash Flow Calculator?
Emotion is the enemy of investing. A house might look beautiful or be in a trendy neighborhood, but if the numbers don't work, it's a bad investment. By running the numbers through a calculator before making an offer, you protect yourself from bad deals and focus your capital on properties that generate true passive income.