Investing in real estate is a powerful strategy for building wealth, but not all properties are good investments. The most critical metric for any buy-and-hold real estate investor is Cash Flow. This calculator helps you analyze a potential rental property to determine if it will generate a positive monthly income after all expenses are paid.
How to Calculate Rental Cash Flow
Cash flow is essentially the money left over after you have paid all the expenses associated with owning the property. The formula is simple:
Cash Flow = Total Income – Total Expenses
1. Total Income
This is primarily your monthly rent. However, savvy investors also account for a "Vacancy Allowance." No property is occupied 100% of the time. Deducting a percentage (commonly 5-8%) from your gross rent ensures your calculations are conservative and realistic.
2. Total Expenses
Many new investors make the mistake of only counting the mortgage payment. To get an accurate picture, you must include:
Principal & Interest (P&I): Your standard mortgage payment.
Taxes & Insurance: Property taxes and hazard insurance premiums.
Maintenance: A set budget for repairs (e.g., broken toilets, roof leaks).
CapEx (Capital Expenditures): Saving for big-ticket items like HVAC replacement.
HOA Fees: If the property is in a managed community.
What is a Good Cash on Cash Return?
The Cash on Cash (CoC) Return measures the annual return on the actual cash you invested, rather than the total purchase price. It is calculated as:
CoC Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100
While "good" is subjective, many investors target a CoC return of 8% to 12%. In highly appreciative markets, investors might accept lower cash flow (4-6%) in exchange for future equity growth, while in stable markets, they may demand higher immediate returns.
Using This Calculator for Decision Making
Use this tool to "stress test" your investment. What happens if interest rates rise by 1%? What if the insurance premium doubles? By adjusting the inputs, you can see how sensitive your cash flow is to market changes, allowing you to make a more informed purchase decision.
function calculateCashFlow() {
// 1. Get Input Values
var price = parseFloat(document.getElementById('purchasePrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var years = parseFloat(document.getElementById('loanTerm').value);
var rent = parseFloat(document.getElementById('monthlyRent').value);
var taxes = parseFloat(document.getElementById('propTaxes').value);
var insurance = parseFloat(document.getElementById('insurance').value);
var maintenance = parseFloat(document.getElementById('maintenance').value);
var hoa = parseFloat(document.getElementById('hoaFees').value);
var vacancyRate = parseFloat(document.getElementById('vacancyRate').value);
// Validation to prevent NaN errors
if (isNaN(price) || isNaN(downPayment) || isNaN(rent)) {
alert("Please enter valid numbers for price, down payment, and rent.");
return;
}
// 2. Calculate Mortgage Payment
var loanAmount = price – downPayment;
var monthlyRate = (interestRate / 100) / 12;
var numberOfPayments = years * 12;
var mortgagePayment = 0;
if (interestRate > 0) {
mortgagePayment = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
} else {
mortgagePayment = loanAmount / numberOfPayments;
}
// 3. Calculate Vacancy Loss
var vacancyLoss = rent * (vacancyRate / 100);
var effectiveIncome = rent – vacancyLoss;
// 4. Calculate Total Monthly Expenses
var totalExpenses = mortgagePayment + taxes + insurance + maintenance + hoa;
// 5. Calculate Cash Flow
var cashFlow = effectiveIncome – totalExpenses;
var annualCashFlow = cashFlow * 12;
// 6. Calculate Cash on Cash Return
// Total Cash Invested = Down Payment (Assuming closing costs are simplified or included in down payment for this calc, otherwise we add an input)
// For simplicity in this specific tool, we use Down Payment as the cash basis.
var cashInvested = downPayment;
var cocReturn = 0;
if (cashInvested > 0) {
cocReturn = (annualCashFlow / cashInvested) * 100;
}
// 7. Display Results
// Format currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('resMortgage').innerText = formatter.format(mortgagePayment);
document.getElementById('resExpenses').innerText = formatter.format(totalExpenses);
document.getElementById('resIncome').innerText = formatter.format(effectiveIncome);
var cfElement = document.getElementById('resCashFlow');
cfElement.innerText = formatter.format(cashFlow);
// Color coding for cash flow
if (cashFlow > 0) {
cfElement.className = "result-value positive";
} else if (cashFlow 0) {
cocElement.className = "result-value positive";
} else if (cocReturn < 0) {
cocElement.className = "result-value negative";
} else {
cocElement.className = "result-value";
}
// Show results div
document.getElementById('results').style.display = 'block';
}