Rental Property Cash Flow Calculator
Acquisition & Loan
Income & Expenses (Monthly)
Financial Performance
Understanding 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. The key to successful real estate investing lies in the numbers, specifically Cash Flow. This calculator is designed to help investors determine the profitability of a potential rental property by accounting for income, operating expenses, and debt service.
Positive Cash Flow means your rental income exceeds all your expenses, putting money in your pocket every month. Negative cash flow implies you are losing money to hold the property, which can be risky unless you are banking purely on appreciation.
How This Calculator Works
Our tool breaks down the investment analysis into two main categories: acquisition costs and ongoing monthly operations.
1. The Mortgage Payment (P&I)
Unless you are buying in cash, your largest monthly expense will likely be your mortgage. This is calculated based on your Principal (Loan Amount) and Interest. The formula used is the standard amortization formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
- P: Principal loan amount
- i: Monthly interest rate
- n: Total number of months
2. Operating Expenses
Many new investors make the mistake of only calculating the mortgage and ignoring other costs. To get a True Cash Flow number, you must account for:
- Vacancy Rate: Properties won't be occupied 365 days a year. We calculate a vacancy provision (usually 5-8%) deducted from gross rent.
- Maintenance: Toilets break and roofs leak. Setting aside a monthly budget ensures you have funds when repairs are needed.
- Taxes & Insurance: These are fixed holding costs that must be paid regardless of occupancy.
Key Metrics Explained
Cash on Cash Return (CoC)
This is arguably the most important metric for ROI. It measures the annual cash income earned on the cash you actually invested (down payment + closing costs), expressed as a percentage.
Formula: (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
A good CoC return varies by market, but many investors target 8-12% or higher.
Cap Rate (Capitalization Rate)
Cap Rate measures the property's natural rate of return assuming you bought it in cash, without a loan. It helps compare the profitability of different properties irrespective of financing.
Formula: (Net Operating Income / Current Market Value) × 100
Strategies to Improve ROI
If the numbers in the calculator aren't looking green, consider these strategies:
- Increase Rent: Look for value-add opportunities like cosmetic renovations that justify higher rent.
- Lower Expenses: Shop around for cheaper insurance or manage the property yourself to save on management fees.
- Refinance: If interest rates drop, refinancing can lower your monthly debt service, instantly boosting cash flow.