Purchase Info
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Loan Details
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Rental Income
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Recurring Expenses
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Investment Analysis
Monthly Cash Flow
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Cash on Cash Return
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Cap Rate
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Net Operating Income (Yearly)
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Total Cash Needed
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Monthly Expenses
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How to Calculate Rental Property Cash Flow
Investing in real estate is one of the most reliable ways to build wealth, but not every property is a good deal. To ensure your investment will be profitable, you need to accurately calculate the Cash Flow, Cap Rate, and Cash on Cash Return. This calculator breaks down the complex mathematics of real estate investing into simple, actionable metrics.
Understanding Key Investment Metrics
Before making an offer on a property, it is crucial to understand the metrics that professional investors use to evaluate deals.
- Cash Flow: This is the net profit you pocket every month after all bills are paid. It is calculated as Gross Rent – (Mortgage + Expenses). Positive cash flow ensures the property pays for itself.
- Net Operating Income (NOI): This metric measures the profitability of the property excluding debt service (mortgage). It is helpful for comparing properties regardless of financing methods.
- Cap Rate (Capitalization Rate): Calculated as (NOI / Purchase Price) × 100. It represents the potential return on investment if you paid all cash. A higher Cap Rate generally indicates a better return, though often comes with higher risk.
- Cash on Cash Return: This is arguably the most important metric for investors using leverage. It measures your annual cash flow against the actual cash you invested (Down Payment + Closing Costs).
Common "Hidden" Expenses
Many new investors make the mistake of only subtracting the mortgage payment from the rent to determine profit. This typically leads to overestimating returns. To get an accurate picture, you must account for:
- Vacancy: Properties won't be rented 365 days a year. A standard conservative estimate is 5-8% of rent set aside for vacancy periods.
- Maintenance: Roofs leak and toilets break. Setting aside 5-10% of monthly rent for repairs ensures you have funds when things go wrong.
- Property Management: Even if you plan to self-manage, it is wise to factor in a management fee (usually 8-10%) to ensure the deal still works if you decide to hire a manager later.
- CapEx (Capital Expenditures): Major replacements like HVAC systems or roofs differ from routine maintenance and should be budgeted for separately.
What is a Good ROI?
While "good" is subjective, many investors look for a Cash on Cash Return of 8-12% or higher. In high-appreciation markets, investors might accept lower cash flow (4-6%) in exchange for long-term equity growth. Conversely, in stable, low-appreciation markets, investors often demand higher immediate cash flow (12%+).